paisapower

A 10-Day Trading System

2011-11-17T19:00:00.001+05:30

Life is really simple, but we insist on making it complicated. -- Confucius

There are many different systems and techniques that traders can learn to help themselves gain an edge in their trading. Some of these are complex, but they do not have to be complex to be good. The 10-day System is probably the simplest one you will ever learn, yet it can be very helpful, especially during choppy markets.

The 10-day System works on the simple principle that when the markets (especially the S&P 500 index) are at 10-day relative highs or lows, the trend will change direction temporarily. A 10-day low happens when the closing price of a certain day is lower than the close of the last 10 days. This usually results in a strong bounce in price within 5 days. A 10-day high happens when the close is higher than the close of the last 10 days. The 10-day high's results are a little more erratic, but often the results are downward or at least flat movement for the next 5 days.

Here is the 10-day System chart from the first few months of 2006.

The blue arrows indicate a buy according to the system, which is the morning after a 10-day low is reached, while the red arrows indicate a sell signal the morning after at 10-day high is reached. This chart is a good demonstration of how accurate it can be at times. During strongly trending markets, the results are not quite as good, but it is still usually pretty good for predicting short pauses, at least, in the trend.

The 10-day lows are, by far, more useful then the 10-day highs. Since 1980, the 10-day lows have been an accurate predictor of short-term gains on the SPX index about 62% percent of the time. Simply buying the morning after a low signal and holding for exactly 5 days each time, as described above, would have yielded a gain of around 120% for the 26 year time period, and that is without reinvesting profits.

While that, in itself, is impressive, it is definitely not the only way that you can use the system. The 10-day System is probably best used to direct your other trades. For example, if you swing trade stocks or options and notice that the 10-day System hits a high signal, you might avoid or cut back on your bullish trades for a few days.

Price Headley is the founder and chief analyst of BigTrends.com.

The Trend is your Friend

2011-11-05T23:00:00.000+05:30

The Trend is your Friend

TRADERS’ BIGGEST PROBLEM

Trading is an great way to make a living and/or accumulate large sums of wealth. As a trader you alone are responsible for all your decisions that you may take to make profits and/or losses in the course of your trading career.

As a trader you alone will be responsible for all or any loss that you may make and on the other hand you do not have to thank anyone for your profits. You are the boss and you are not obligated to anyone expect yourself.

However there is a problem that most traders do not understand and that is that most of the time the market does not move in trends. The market only trends only 30-50% of the time. The rest of the time the market is sleeping or it does not have a discernable trend from which traders can make money. Professional traders make most of their profits in a trending market.

By following trends over different time frames, traders can increase their profit making opportunity in trending markets and stay away from markets when they are not trending.

The Trend is your Friend

TREND AND TRADING RANGE
Traders try to profit from changes in prices: Buy low and sell high or sell short high and cover low. Even a quick look at a chart reveals that markets spend most of their time in trading ranges. They spend less time in trends.

A trend exits when prices keep rising or falling over time. In an uptrend, each rally reaches a higher high than the preceding rally and each decline stops at a higher level than the preceding decline. In a downtrend each decline falls to a lower low than the preceding decline and each rally stops at a lower level than the preceding decline and each rally stops at a lower level than the preceding rally. In trading range most rallies stop at about the same high and declines peter out at about the low.

A trader needs to identify trends and trading ranges. It is easier to trade during trends than in trading ranges.

PSYCHOLOGY OF TRENDS AND TRADING RANGE

An uptrend emerges when bulls are stronger than bears and their buying forces prices up. If bears manage to push prices down, bulls return in force, break the decline, and force prices to a new high. Downtrends occur when bears are stronger and their selling pushes markets down. When a flurry of buying lifts prices, bears sell short into that rally, stop it, and send prices to new lows.

When bulls or bears are equally strong or weak, prices stay in a trading range. When bulls manage to push prices up, bears sell short into that rally and prices fall. Bargain hunters step in and break the decline, bears cover shorts, their buying fuels a minor rally, and the cycle repeats.

Prices in trading ranges go nowhere, just as crowds spend most of their time in aimless mulling. Markets spend most of their time in trading ranges than trends because aimlessness is more common among people than purposeful action. When a crowd becomes agitated or excited, it surges and creates a trend.

THE HARD RIGHT EDGE

Identifying trends and trading ranges is one of the hardest tasks in technical analysis. It is easy to find them in the middle of the chart, but the closer you get to the right edge, the harder it gets.

Trends and trading ranges clearly stand out on old charts. Experts show those charts on seminars and make it seem easy to catch trends. Trouble is your broker does not allow you to trade in the middle of the chart. He says you must make your trading decisions at the hard right edge of the chart!

The past is fixed and easy to analyze. The future is fluid and uncertain. By the time you identify a trend, a good chunk of it is already gone. Nobody rings a bell when a trend dissolves into a trading range. By the time you recognize the change, you will lose some money trying to trade as if the market was still trending.

Most people cannot accept uncertainty. They have a strong emotional need to be right. They hang on to losing positions, waiting for the market to turn and make them whole. Trying to be right in the market is very expensive. Professional traders get out of losing trades fast. When the market deviates from your analysis, you have to cut losses without fuss or emotions.

THREE IMPORTANT TRENDS
You may be asking yourself the question, "What is a trend and how long does it last?" There are countless numbers of trends, but before the advent of intraday charts, there were three generally accepted durations: primary, intermediate and short-term.

The main or primary trend, is often referred to as a bull or bear market. Bulls go up and bears go down. They typically last about nine months to two years with bear market troughs separated by just under four years. These trends revolve around the business cycle and tend to repeat whether the weak phase of the cycle is an actual recession, or if there is no recession and just slow growth.

Primary Trend

Primary trends are not straight-line affairs, but are a series of rallies and reactions. These series of rallies and reactions are known as intermediate or medium term trends.

The intermediate or medium term trend can vary in length from as little as six weeks to as much as nine months, or the length of a very short primary trend.

Intermediate trends typically develop as a result of changing perceptions concerning economic, financial, or political events. It is important to have some understanding of the direction of the main or primary trend because rallies in bull markets are strong and reactions are weak. On the other hand, reactions in bear markets are strong and rallies are short, sharp, and generally, unpredictable.

If you have a fix on the underlying primary trend, you will be better prepared for the nature of the intermediate rallies and the reactions that will unfold.

In turn, intermediate trends can be broken down into short-term trends, which last from as little as two weeks to as much as five or six weeks.
Market Cycle Model

As an investor, it is best to accumulate when the primary trend is in the early stages of reversing from down to up, and liquidate when the trend is reversing from up to down. Second, as traders, we are better off if we position ourselves with the long side in a bull market since that is when short-term uptrends tend to have the greatest magnitude. By the same token, it does not usually pay to short in a bull market because declines can be quite brief and reversals to the upside unexpectedly sharp. If you are going to make a mistake, it is more likely to come from a counter-cyclical trade.

If you're an intraday trader, you may think all of this does not apply to you, but really, it does. It is important to remember that even on intraday charts, the predominant trend determines the magnitude and duration of the shorter moves. You may not feel a three-hour rally is closely related to a two-year primary bull market move, but it is just as related as a five or six-day trend.

Charles Dow, the author of the venerable Dow theory, stated at the turn of the century that the stock market had three trends. The long term trend lasted several years, the intermediate trend lasted several months and anything shorter than that was a minor trend. Robert Rhea, the great market technician of the 1930s, compared the three market trends to a tide, a wave and a ripple. He believed that traders should trade in the direction of the market tide and take advantage of the waves and the ripples to time your entry and exit.

CONFLICTING TIMEFRAMES
Most traders ignore the fact that markets usually are both in a trend and in a trading range at the same time! They pick one time frame such as daily or hourly and look for trades on the daily charts. With their attention fixed on daily or hourly charts, trends from other time frames, such as weekly or 10 minute trend keep sneaking up on them and wrecking havoc with their plans.

Markets exist in several time frames simultaneously. They exist on a 10 minute chart, an hourly chart, a daily chart, a weekly chart, and any other chart. Traders often feel confused when they look at charts in different time frames and they see the markets going in several directions at once. The market may look for a buy on a daily chart and a sell on the weekly chart, and vice versa. The signals in different time frames of the same market often contradict one another. Which of them will you follow? Most traders pick one time frame and close their eyes to others – until a sudden move outside of “their” time frame hits them.

A FACTOR OF FIVE

When you are in doubt of a trend, step back and examine the charts in a timeframe that is larger than the one you are trying to trade. A factor of 5 links all timeframes. If you start with the weekly charts and proceed to the dailies, you will notice that there are five trading days to a week. As your timeframe narrows, you will look at hourly charts – and there are approximately 5 to 6 trading hours to a trading day. Intra day traders can proceed even further and look at 10 minute charts, followed by 2 minute charts. All are related by a factor of five. The proper way to analyze any market is to analyze it in at least two time frames. If you analyze daily charts, you must first examine the weekly charts and so on. This search for greater perspective is one of the key principles of the Traders Edge Multiple Time Frame Trading System.

METHOD AND TECHNIQUES

There is no single magic method to identifying trends and trading ranges. There are several methods and it pays to combine them. When they confirm one another, their message is reinforced. When they contradict one another, it is better to pass up the trade.

Analyze the pattern of highs and lows. When rallies keep reaching higher levels and declines keep stopping at higher levels they identify an uptrend. The pattern of lower lows and lower highs identifies a downtrend, and the pattern of irregular highs and lows points to a trading range.
Draw an uptrendline connecting significant recent lows and a downtrendline connecting significant recent highs. The slope of the latest trendline identifies the current trend A significant high or low on a daily chart is the highest high or lowest low for at least a week. As you study charts, you become better at identifying those points. Technical analysis is partly a science and partly an art.
The direction of a slope of a moving average identifies the trend. If a moving average has not reached a new high or low in a month, then the market is in a trading range.
Several market indicators, such as MACD and the Directional system help identify trends. The Directional system is especially good at catching early stages of new trends.

CONCLUSION

When you trade in the direction of this long a trend, you are truly following the markets rather than predicting them. However trading with the trend is hard to do because a logical give-up exit point will be farther away, potentially causing a larger loss if you are wrong. This is a good example of why so few traders are successful. They can't bring themselves to trade in a psychologically difficult way.
This article contains content from New Trading Dimensions, written by Bill Williams and Trading for a Living, written by Alexander Elder.

via- http://www.tradersedgeindia.com/trend_is_your_friend.htm

via-

Nifty Future - Real Time Chart!

2011-11-05T22:06:00.000+05:30

Nifty Future - Real Time Chart!

Millionaire Traders - Ebook

2011-11-01T21:14:00.000+05:30

Millionaire Traders How - Everyday People Are Beating Wall Street at Its Own Game

Risk Management For Traders

2011-10-30T21:34:00.000+05:30

One of Sun Tzu’s most famous quotes is: “Every battle is won before it is fought.” The phrase implies that it is planning and strategy that wins wars and not the battles themselves. Similarly, successful traders commonly quote the phrase: “Plan the trade and trade the plan.” Just like in war, planning ahead can often mean the difference between success and failure.

Stop-loss (S/L) and take-profit (T/P) points represent two key ways in which traders can plan ahead when trading. Successful traders know what price they are willing to pay and at what price they are willing to sell, and they measure the resulting returns against the probability of the stock hitting their goals. If the adjusted return is high enough, then they execute the trade.

Conversely, unsuccessful traders often enter a trade without having any idea of at what points they will sell at a profit or a loss. Like gamblers on a lucky or unlucky streak, emotions begin to take over and dictate their trades. Losses often provoke people to hold on and hope to make their money back, while profits often entice traders to imprudently hold on for even more gains.

Take-Profit Points, trading greed, trading fear, trading emotions, financial behavior

A stop-loss point is the price at which a trader will sell a stock and take a loss on the trade. Often times, this happens when a trade does not pan out the way a trader hoped. The points are designed to prevent the “it will come back” mentality and limit losses before they escalate. For example, if a stock breaks below a key support level, traders often sell as soon as possible.

On the other side of the table, a take-profit point is the price at which a trader will sell a stock and take a profit on the trade. Often times, this is when there is limited additional upside given the risks. For example, if a stock is approaching a key resistance level after a large move upwards, traders may want to sell before a period of consolidation takes place.

How to Effectively Set Stop-Loss Points, long and short term moving averages, adjusting stop loss, fundamental events, earnings report, FDA decision, volatility

Setting stop-loss and take-profit points is often done using technical analysis, but fundamental analysis can also play a key role in timing. For example, if a trader is holding a stock ahead of earnings as excitement builds, he or she may want to sell before the news hits the market if expectations have become too high, regardless of whether the take-profit price was hit.

Moving averages represent the most popular way to set these points, as they are easy to calculate and widely tracked by the market. Key moving averages include the five-, nine-, 20-, 50, 100- and 200-day averages, and are best set by applying them to a stock’s chart and determining whether the stock price has reacted to them in the past as either a support or resistance level.

Another great way to place stop-loss or take-profit levels is on support or resistance trendlines that can be drawn by connecting previous highs or lows that occurred on significant, above-average volume. Just like moving averages, the key is determining levels at which the price reacts to the trendlines, and of course, with high volume.

Calculating Expected Returns

Setting stop-loss and take-profit points is also necessary in order to calculate expected return. The importance of this calculation cannot be overstated, as it forces traders to think through their trades and rationalize them. As well, it gives them a systematic way of comparing various trades and selecting only the most profitable ones.

This can be calculated using the following formula:

[ (Probability of Gain) x (Take Profit % Gain) ] + [ (Probability of Loss) x (Stop Loss % Loss) ]

The result of this calculation is an expected return for the active trader, who will then measure it against other opportunities in order to determine which stocks to trade. The probability of gain or loss can be calculated by using historical breakouts and breakdowns from the support or resistance levels or by making an educated guess for experienced traders.

The Bottom Line

Traders should always know when they plan to enter or exit a trade before they execute. By using stop losses effectively, a trader can minimize not only losses, but also the amount of times a trade is exited needlessly. Make your battle plan ahead of time so you’ll already know you’ve won the war.

via http://www.anirudhsethireport.com/risk-management-for-traders/

Educative, Lucrative SAR (Stop And Reverse)

2011-10-06T15:47:00.000+05:30

Everyday When you read the SAR with the stochastics & Rsi and trade as per the green(Buy) and Red (Sell) dots as they begin to appear, you can eliminate some whipsaws and take sizeable profits in each trade.

Alternatively when the trend is down, trade only the red dots and vice versa.

If you know in advance the likely targets, critical levels or a completion of a wave structure( Fives or ABC), you can then book out before the trend reverses.

Try this exercise diligently and see your profits growing. Trade with the trend. If you are trading a counter trend, trade small & with strict SL and for a very short duration.

And don't go around trumpeting your triumps but just keep to yourself and trade consistently and gratefully say a "thank you to your favourite GOD", thereby keeping your feet firmly on the ground and heads bowed down to receive the bounty consistently.

Below is today's intrachart with " 4 trades" of sizeable profits. Even if you had traded the one whipsaw, you still would have ended up mighty happy with your performance.

via - http://tradeinniftyonly.blogspot.com/2008/11/educative-lucrative-sar-stop-and.html

Force 5min trading system

2011-10-02T12:05:00.001+05:30

Force 5min trading system

Steven Primo's simple trading strategy

2011-09-24T07:51:00.003+05:30

LIVE SGX NIFTY CHART

2011-08-06T18:23:00.000+05:30

LIVE SGX NIFTY CHARTS

Fibonacci Retracement and Extension Calculator

2011-07-08T00:33:00.000+05:30

38 Steps To Becoming A Trader

2011-07-05T23:23:00.001+05:30

Here is an excellent article I read some time ago and recently rediscovered. It accurately describes the process most traders go through on their long and winding path to success.

In my own experience, not all traders go through every step, and not every step is met in the order presented here. In fact, this can be quite an iterative process with the trader getting stuck in a loop and repeating certain steps time and again until they either realize the problem for themselves, or are given a nudge from a more experienced hand.

I don’t know who created the original list, but should the original author read this and get in touch, I will gladly credit them for their efforts!

Update: A reader has kindly emailed me to inform me that the original article was published in 'CTCN' by "Anonymous Trader".

1. We accumulate information - buying books, going to seminars and researching.
2. We begin to trade with our 'new' knowledge.
3. We consistently 'donate' and then realize we may need more knowledge or information.
4. We accumulate more information.
5. We switch the commodities we are currently following.
6. We go back into the market and trade with our 'updated' knowledge.
7. We get 'beat up' again and begin to lose some of our confidence.

Fear starts setting in.

8. We start to listen to 'outside news' and to other traders.
9. We go back into the market and continue to 'donate'.
10. We switch commodities again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get 'over-confident' and the market humbles us.
14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.

Most people will give up at this point, as they realize work is involved.

15. We get serious and start concentrating on learning a 'real' methodology.
16. We trade our methodology with some success, but realize that something is missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all we still hesitate when it comes time to execute.
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don't follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear), and we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.

Penny Stocks A Profitable Roller Coaster

2011-05-04T12:11:00.001+05:30

New investors are being drawn by the appeal of what is known as penny stocks because of the low price and the potential for quick financial growth which can soar as high as as one hundred percent or more in just a few days. But, on the down side, severe loss can occur just as quickly and many penny stocks can lose all of their value in the long term market. Some people will warn you that penny stocks are too high risk to invest in and that new investors should do their homework to be aware of the risks that are involved in penny stocks. These risks include limited liquidity, little or no financial reports, and, of course, fraud.

But, many new investors have had a great deal of good fortune with penny stocks. Even though a penny stock has fewer shareholders, and it will not trade as many shares per day as a larger company, penny stocks can still afford a newbie in the trading game an excellent opportunity to make a lot of money quickly that maybe invested in other strong companies.

As with any type of stock, a sudden change in the demand of a certain stock can lead to a great deal of volatility in the price of any company stock. This lack of liquidity with penny stocks can send a stock price soaring up very quickly, but it can come crashing down just as quickly. So making sure that you closely watch the penny stock market can help you make some shrewed investments that can have some very high payoffs.

Even with the lack of liquidity and volatility of penny stocks they can still be an ideal investment for many people who have the desire to increase their personal financial holdings and get the feel of trading and investing the stock market. Finding a good and reputable stock firm is the best idea for starting to deal in penny stocks. This helps to minimize financial loss and helps to avoid any fraudulent penny stocks that have become a common area for online scam artists.

So, if you have the desire to jump into the world of the stock market, but don’t want to invest a lot of your hard earned cash try penny stocks. They can be well worth the effort for short term income growth and lead to bigger and better things.

All stock trading activities cost a fee and they have a certain amount high level of monetary risks especially for the unwise and inexperienced stock traders and/or investors seeking a quick and easy way to make a lot of money in a short period of time. Also, stock traders and investors will have to deal with the costs of commissions, taxes and fees to be paid for the brokerage services. There is a myriad of fiscal obligations that must be observed, as well as the taxes that are charged by a particular state on the transactions.

Many companies offer courses in stock picking, and many have reported a great deal of success through technical and fundamental analysis. But many economists and academics have stated that because of what is known as efficient market theory it is unlikely that no matter the amount of analysis that one can do, it will not help an investor make any gains above the stock market itself.

via- daytrading.net

M A N V S M A R K E T

2011-03-11T21:58:00.002+05:30

M A N V S . M A R K E T | b y R O B B O O K E R

Day Trading Gaps, Market Profile, Ergonomic Day Trading, technical indicators

2011-02-08T22:20:00.003+05:30

via - http://www.SchoolOfTrade.com

How to use doji cndlestick patterns

2011-01-23T22:16:00.001+05:30

Doji:

The doji is a characteristic figure whose opening level is equal to the closing level. Indeed, one can interpret this figure as one in which UT Bulls and Bears have delivered a battle after which there was no winner.

Interpretation:

If the trend prior to the appearance of a doji is bullish (bearish), it means that buyers (sellers) during the firing up (down) because their buying frenzy (Panic selling) was very strong.

But beware, a doji should under no circumstances be regarded as a trigger signal to buy or sell, it shows only a hesitation in the market.

It represents a meeting point between bullish and bearish that depending on the configuration of time may be followed by a reversal, or a continuation of the status quo, so it is important to study the environment in which the doji appears rather that the latter himself.

Thus, it appears after a large white candlestick (black) that comes with a unidirectional pattern, the signal is very strong and announced, with high probability a reversal if the ongoing closure of Candlestick following are beyond the distal doji (see graph below) or a continuation of the trend if the ongoing closure of Candlestick following are beyond the upper end of the doji (see graph below), the only market force that managed to emerge d an area of uncertainty.

However, if a doji forms after a series of candlesticks with small bodies, we can consider that it gives no signal.

Note: When a doji is formed on a trough (peak), and is therefore synonymous with reversal, it is highly likely that these levels become a support (resistance).

The different types of doji

The long-legged doji or high wave

For this type of doji, there are again three alternatives:

The doji cross gives a bullish signal when it appears after a downtrend, while the doji cross inverted gives bearish signal when it appears after an uptrend.

The doji water-carrier in turn, demonstrates the strong market indecision.

The gravestone doji in

The opening price on the lowest of the UT and although they manage to score new highs, sellers regain control before the end of the battle and forcing the prices to recede to their opening level. This configuration gives a very bearish signal when it occurs during an uptrend. More shade, the stronger the signal is bearish. Indeed, consider the shade high as an area offering significant.

The dragonfly doji in or doji dragon

The opening price on the highest of the UT and although they manage to mark a new low, buyers regain control before the end of the battle and carry prices to their opening level. This configuration gives a very bullish signal when it occurs during a downtrend. More shade is low, the signal is more bullish. Indeed, consider the shade as a low area demand.

The doji without wick

This is a particular doji that appears almost exclusively on very illiquid markets. For such a doji appears, it is no exchange is made or that the carry trade is all one and the same price on the UT. It really does not start signal on the direction of the market but that it's a market that lacks liquidity and it is therefore more risky to enter it because it will be difficult to leave without leave feathers.
Doji: Application to the trading and investment:

The range of doji shows key levels which when crossed (upwards or downwards) by following the latter candlesticks are points of entry or exit privileged.

In the case of a reversal to the downside, we'll wait to closing under the low end of the doji to place a sell order. In the case illustrated, it will be realized by a sale at the opening of the second black candlestick. The protective stop is placed just above the upper end of the doji, which corresponds to the point of invalidating the hypothesis.

In the case of a continuation of the increase, we will wait to close above the doji's upper extremity to place a purchase order. In the case illustrated, it will be materialized by a purchase at the opening of the second white candlestick after the doji. The protective stop is placed just below the low end of the doji, which corresponds to the point of invalidating the hypothesis.

Adam and Eve chart pattern

2011-01-23T22:09:00.002+05:30

The dip in Adam and Eve is a variant of the double bottom. So a figure of reversal, it generally occurs after a downtrend. This figure takes the form of a double bottom it is different in that the first bottom is shaped like a "V" and the second bottom in the shape of "U".

via- Candlestick Course

Anatomy Of A Stock Breakout

2010-10-03T12:19:00.000+05:30

Here's a great example of a breakout trade for a very short-term stock trader. This is the kind of pattern that can work well in trading competitions, such as the one sponsored by CNBC. First, we look for the opening trading range of the first 15-30 minutes. The opening range tells us how market makers are establishing value for the stock (National Semiconductor, NSM; 5 minute bar chart). Note that the opening range (Point A) is above the prior day's close. That tells us that we are seeing increased value being placed in the stock.

At Point B we see a breakout from the opening range on increased volume. That tells us that large market participants are viewing the stock positively, jumping in to buy at new AM highs.

Point C represents the first pullback from the breakout, as some short-term participants take profits. When we see a shallow pullback on reduced volume, as we do here, it tells us that the higher prices are not attracting significant selling. This sets us up for further upside (Point D).

At each pullback in the stock (the horizontal blue lines), we see how far sellers could knock the issue down. Once we get a new move to daily highs, those blue lines can serve as trailing stops to lock in profits.

The nice thing about such setups is that it only takes a few winners to pay for a number of ideas that chop around and don't do much. A majority of profits will come from a handful of nicely trending trades.

via - http://traderfeed.blogspot.com/2007/03/anatomy-of-stock-breakout.html

How I Came Back From My Worst Loss

2010-09-17T20:30:00.001+05:30

Mohammed Isah is a private trader and an independent technical analyst. He initially traded stocks and now primarily focuses on forex. You can contact Mohammed on his pivot points reports and other inquiries at:isahmo@gmail.com.

Trading is an interesting profession and has no peak as in other occupations. It is in fact an endless journey of discovery of oneself and trading itself.
Trading for me at beginning was very tough not that I was not successful in other endeavors but I took it like every beginner thinking that it was easy.
With this perception, I approached trading without a plan or proper trading education on how the market works. What do you expect? Your guess is as good as mine. It was a total disaster after taking many losses; I was almost psychologically blown a way. At this stage, two important things happened to me, my P&L was in the red and I was down emotionally.
My Worst Trade
My worst loss that stands out in all my losses was a trade I took (bought EUR/USD) in anticipation of French Referendum thinking that it would be in favor of the European Union but alas I got a margin call after the result was negative.
Please do not ask me about a stop loss I did put a stop loss but I later removed it because I was so confident it was going to be a winning trade. Hey, can't you understand. I have been declaring losses so I thought this time round I would take a large position and cover all my losses. I was subsequently charged to court (trading), tried and found guilty (for losses). Punishment, six months without trading. While serving my term I embraced trading education especially technical analysis and trading psychology. So when I got a handle of certain strategies applying technical analysis and trading psychology I started trading again but not without losses but I followed my trading plan anyway and things improved especially when I became comfortable with losses as expenses in the business of trading.
Lessons
Never Trade Without A Trading Education - acquire proper trading education because the knowledge through trial and error in the market can be more expensive and time consuming than the normal trading education.
Never Trade Without A Plan - Having a trading plan is a most in this business if you want to succeed. This plan most specify and predetermine your entries, exits, stop loss, position size and your psychology (your emotion at the time you click enter). There could be more you could have on your plan but the most important thing is that you must follow it, because when you follow your plan you have a chance of succeeding in trading. You may be tempted to say do I have to follow this damn plan everyday, just go to a near by Airport and observe what pilots do everyday; they follow their plan and check each one before taking off. He can as well say, I feel better flying without my plan because I do it every time. That you know will be disastrous.
Do Not Be Smarter Than Your Emotion -What do traders do when they are tired? They wait for an opportunity instead of turning off their computers and call it a day they stay on waiting to initiate a position and when the trade turns out to be a loser they become angry adding to the tiredness. Hey, you know what, you can not win at trading if you are not in your right frame of mind. If you have problems with your spouse please do not trade, if you have a string of losses do not trade, take some time off and go over your losses until you know what went wrong before you can put on another trade. If any thing occupies your mind apart from the market and following your trading plan when you are ready to trade, do all you can to resolved it before you start trading for the day. If you cannot go golfing.
Cut Your Losses Shut And Let Your Winners Run -This one sounds familiar, right.The professionals do exactly as is stated here but what do novice traders do? They do the opposite by letting their losses run and cutting their winners shut.
In other words, they are patient with their losses and impatient with their winners thinking that their positions would come back. The hard truth is the market does not know whether you are winning or losing. It will go wherever it wants to go and do what it has been doing, which is moving up and down. It is now left to you to find opportunities within these up moves and down moves.
Becoming A Professional Trader Takes Time - This might sound funny. Do not ask any trader to tell you how many years it will take you to become a professional/experience trader. The truth is that real professional traders know that the education of a trader never ends. It is ongoing because market is not static, it changes so if you think you have acquired enough trading knowledge and market conditions change and you cannot cope with the changes you automatically become a learner. The fastest way to become a good trader is to learn from the professional traders (their strategies and how they apply them) taking into consideration your own psychological make up.

via - http://www.tradingmarkets.com

What a successful daytrader does daily!

2010-08-26T23:18:00.001+05:30

Before diving into Day Trading, please ask yourself if you have the following personality traits!

Confidence

This is perhaps the most important personality trait of good day traders. You won't succeed at day trading unless you have a high measure of confidence in yourself. Lack of self-confidence will result in doubt, indecision and second-guessing which, in turn, will lead to missed trading opportunities and frequent losses. You must believe in yourself when day trading. If not, you will be better off pursuing some other endeavour.

Discipline

In order to day trade successfully, you must develop a trading plan and consistently stick to it. You must avoid a "shooting from the hip" or a "seat of the pants approach" to day trading.

Get out of the market when you have reached your objective and do not let emotions like fear and greed influence your trading decisions.

Decisiveness

Good day traders do not hesitate to "pull the trigger" when entering and exiting trades. Traders who are in the habit of being tentative or indecisive will never become successful.

Passion

Most successful day traders have a true love or passion about their trading activities. If you do not enjoy reading charts, dealing with numbers, reading market news, interpreting quote screens, learning new trading strategies and working independently in a fast-paced environment, then day trading is probably not your cup of tea.

Ability to Accept Failure (and blame yourself for all failures)

Good day traders know that many of their trades will fail to meet the original objective. They do not, however seek to blame someone else for their loss, and they don't dwell on it. They attempt to learn from their mistakes and move on to the next trade.

Ability to Accept Risk (lose money)

Another personality trait of good traders is that they are comfortable with risk and are prepared to lose money from time to time. If you are afraid that you will, on occasion, lose money, then day trading is not for you.

Patience

Good traders do not rush into trades. They take the time to select good trading opportunities and do not place orders simply for the sake of holding a position in the markets at all times. On some market days, where few good trading opportunities exist, they are content to simply stand aside and wait.

Concentration

In day trading, a great deal of real-time information has to be absorbed, analyzed and acted upon in intense bursts throughout the trading day. This requires a great deal of concentration and stamina on the part of the trader, and the ability to avoid distractions. Day trading can be very hard work and a lack of concentration can doom a trader to failure.

These are the key personality traits that successful day traders tend to have in common! Do you??

via - www.Traderji.com

Multicollinearity

2010-08-22T22:02:00.000+05:30

Multicollinearity is a statistical term for a problem that is common in technical analysis. That is, when one unknowingly uses the same type of information more than once. Analysts need to be careful and not utilize technical indicators that reveal the same type of information.

Here is how John Bollinger states it: "A cardinal rule for the successful use of technical analysis requires avoiding multicollinearity amid indicators. Multicollinearity is simply the multiple counting of the same information. The use of four different indicators all derived from the same series of closing prices to confirm each other is a perfect example."

The issue of multicollinearity is a serious issue in technical analysis when your money is at stake. It is a problem because collinear variables contribute redundant information and can cause other variables to appear to be less important than they really are. One of the real problems is that sometimes multicollinearity is difficult to spot.

Technical indicators should be arranged in categories to keep from using too many from the same category. Here is a table that categorizes the indicators available at StockCharts.com:

Category		Indicators
Momentum		Rate of Change (ROC) Stochastics (%K, %D) Relative Strength Index (RSI) Commodity Channel Index (CCI) Williams %R (Wm%R) StochRSI TRIX Ultimate Oscillator (ULT) Aroon
Trend		Moving Averages Moving Average Convergence Divergence (MACD) Average True Range (ATR) Wilder's DMI (ADX) Price Oscillator (PPO)
Volume		Accumulation Distribution Chaikin Money Flow (CMF) Volume Rate of Change Volume Oscillator (PVO) Demand Index On Balance Volume (OBV) Money Flow Index

The best way to quickly determine if an indicator is collinear with another one is to chart it. Make sure you have enough data on the chart to get a good indication. If they basically rise and fall in about the same areas, the odds are that they are collinear and you should just use one of them.

The first chart below shows some examples of indicators that are collinear. Notice that all three indicators are basically saying the same thing. If your analysis was that this was supportive information, you would be falling into the multicollinearity trap. Pick one of the indicators for your analysis and do not use the others.

Below are some examples of indicators that are not collinear. These three are not similar at all and, when interpreted correctly, each will give different information. It may be supportive or it may not.

Bottom Line: If you are randomly selecting indicators to support your analysis, you will more than likely fall into the multicollinearity trap of using multiple indicators that are all saying the same thing. They are not giving you any additional information; in fact, they are restricting your overall view of the market. Don't search for supporting information among collinear indicators, it is just misleading

via - http://stockcharts.com/help/doku.php?id=chart_school:trading_strategies:multicollinearity

5 minute intraday trading strategy

2010-07-22T15:27:00.000+05:30

This strategy is originally created by Philip Nell a veteran stock trader with more then 10 years experience. This has been tested for trading EUR/USD and GBP/USD. I like the way it define market motion. Though this is a great trading system, I personally don’t use this since I don’t like trading in 5 minute time frame.

It’s quite simple, what you need is 50 SMA, 21 EMA and 10 EMA attached on your 5M Chart. Open position when the angle of the 50 Simple moving average are greater than 20 degrees and the price retrace back into the zone of the 21 Exponential moving average and the 10 Exponential moving average. Set stoploss at 6 pips plus spread and profit taking at 8-10 pips. Move stoploss to breakeven as soon as 6 pips gain is obtained.

Below are some pictures for your reference:

via - http://www.forextac.com/5-minute-intraday-trading-strategy.html

200Day Moving Average

2010-06-22T19:40:00.000+05:30

Granville a respected analyst lists eight basic rules for interpreting the 200 day moving average charts.

1. If the 200 day average line flattens out or advances following a decline, and the price of the stock penetrates that average line on the upside, this constitutes a major buying signal.

2. If the price of the stock falls below the average line while the average line is still rising, this also is a buy signal.

3. If the stock price is above the 200 day line and declines towards it, but fails to go through and instead it turns up again, this is a buying signal.

4. If a stock price falls too fast and far below a declining average line, a short term rebound towards the line may be expected.

5. If the average line flattens out or declines following a rise, and the stock price penetrates that line on the down side, this constitutes a major selling signal.

6. If the price of the stock rises above the average line while the average line is still falling, this also is a selling signal.

7. If the stock price is below the average line a rises towards it, but it fails to go through and instead turns down again, this is a selling signal.

8. If the stock price rises too fast above a rising average line, a short term reaction may be expected.

Phil Newton's Break out Strategy

2010-05-12T03:17:00.001+05:30

BANDS AND BANDS AND CHANNELS

2010-05-08T00:04:00.000+05:30

Trading bands and trading channel are related. Both chart patterns act as a restraint on price activity, confining it within defined boundaries. The channel defines trend behaviour. The band defines support and resistance behaviour and can be used to set price targets.

The trading channel is constructed with two trend sloping trend lines. These are parallel lines and as with any trend line, their value changes daily. The lines show changing sentiment about value. A trading channel shows the limits of this changing sentiment as price bounces from support and retreats from resistance.

The trading band is defined by support and resistance levels where the value remains constant. These are horizontal parallel lines. Price stops trending and develops a sideways movement. These patterns are more useful because they are used to project upside and downside targets. When price moves above the resistance level then the width of the trading and is used to set the potential upside target.

Both trading bands and trading channels are range-bound chart features. They provide short term trading opportunities as price moves between the support and resistance levels. However the range bound trend continuation of a trading channel is traded differently from the trading band with its potential for trade band breakout opportunities.

By Daryl Guppy

TREND LINE CONSTRUCTION

2010-05-07T23:59:00.001+05:30

Look at the chart display. What is the trend for prices? Quite clearly they are going down. If we already have purchased this counter at $7.50, we should be worried. If we are potential buyers of this counter then the price move or break above $6.70 gives us a reason to buy the stock. The trend line gives us a way to decide which price action is significant, but only if it is accurately drawn.

We use a straight edge trend line to tell us which direction prices are moving and to give us a better way to judge the trend. If prices close under the up trend line then it suggests the stock price is falling. Ideally we would want to get out to this stock, selling it to collect our profits and to protect ourselves against loss. We get this exit signal when there is a close, or a series of closes, below the trend line.

In a downtrend, the line is placed along the price highs. A close above this line tells traders the trend may be about to change direction. This is used as an entry signal. Where we draw the trend line is important because it could cost us money.

When we think about buying a stock many traders try to buy a trend breakout. This is when a downtrend turns to an uptrend and prices ‘break out’ above the trend line. Traders try to buy the stock near the bottom just as the stock price starts to move up. They get a buy signal when the price closes above the downtrend line.

Up trend or down trend, the principles of drawing the trend line are the same. An accurate trend line uses the information available from a bar or candlestick chart. Good trend lines need to use the high or the low prices for accuracy. They are not easy to plot accurately to a line chart.

These are the construction rules:

1) The line is placed along the lows of the price bars or candlesticks in a rising trend. An up trend is defined by higher lows each day. This is the price element we want to track, so the line goes underneath. If prices fall below this line then the trend may change into a downtrend.

A falling trend is defined by the failure of prices to make new highs each day. We track this by placing the downtrend line along the highs as shown in the chart.

2) The trend line uses the extremes of the price bars or candle sticks. This is the high or the low price. These extremes are important because a close beyond the extreme tells traders the trend might be changing. This is an entry, or an exit, signal.

3)The trend line starts at the very extreme high, or low. This is called a pivot point.

4) The trend line should touch the maximum number of possible price bar or candlestick extremities. This means we do not exclude too many, nor do we go for the maximum number of hits. We want to use the trend line as a trading signal, so we are interested in closes beyond the extremes of the existing trend because these give the best trading signals

5) The more often a trend line is hit by price extremes, but not broken, the more powerful the trend line signal. A trend line that has been hit 5 times, but not broken, is very strong. So when prices do close beyond the trend line it is a very strong signal that the trend is changing.

On the chart trend line 1 is a correctly drawn trend line. It touches the optimum number of price extremes. Trend line 2 shows the general direction of prices. Trend line 2 does not give any useful trading signals and prices move above and below this line all the time. Trend line 1 shows us when the downtrend has finished. The close above t trend line 1 clearly signals the beginning of a new up trend and provides an entry signal.

Straight edge trend lines are a very powerful trading signals, but they must be placed correctly. They are used to show the short term trend - perhaps days or weeks - the intermediate term trend - perhaps weeks or months - and the long term trend - perhaps months or even years. Long term trends are best seen on a weekly bar or candlestick chart.

Not all trends are easily defined with a straight edge trend line.

By Daryl Guppy

THE RELATIVE STRENGTH INDICATOR AND DIVERGENCE

2010-05-07T23:52:00.000+05:30

Technical indicators are constructed by manipulating some aspect of price such as a moving average of prices over a 10 day period. The Relative Strength Indicator (RSI) tries to anticipate a change in the trend. This is a leading indicator of a trend change. The results are used to deliver messages about the strength of the market. It is called an oscillator because the indicator readings are converted into percentage results which range from 0% to 100%. The position of each day’s indicator reading gives the trader an indication of the strength, or weakness, of the existing price trend.
The RSI is calculated by monitoring changes in the closing prices of the stock. The number of higher closes is compared to the number of lower closes for the selected period. The RSI compares the internal strength of a stock by looking at the average of the upwards price changes and comparing it with the average of the downward price changes. The results are expressed as a percentage, providing the upper and lower boundaries. The plotted results oscillate between these two levels and give traders information about the speed and acceleration of the changes. Traders use either a 14, 9, or 7 day period in the Relative Strength Calculation.
In this sense the RSI is very similar to a stochastic and uses similar principles. Where the stochastic quantifies the ability of the market to close near the high or the low of the day, the RSI quantifies the strength of the way the market moves higher, or lower. The over-bought and over-sold signals are the same as any oscillator, although with an RSI they are traditionally set at 70% and 30%.
The most significant trading signal delivered by any oscillator style indicator is a divergence signal. This sounds complicated but it just means that the significant valley patterns shown by the RSI trend in the opposite direction to the significant valley patterns as shown by the price line chart. A valley is created by two distinct lows that each precede a rally from a downtrend. This builds a valley in the price chart. The lows of these valleys are joined with a short trend line as shown.
The corresponding lows on the RSI indicator are also joined by a short trend line. When the RSI line slopes differently from the price chart line, a divergence occurs. When these valleys form below the 30% area on the RSI, or form peaks above the 70% level, they are most reliable. Oscillator activity between these levels is not used to find divergence signals. Divergence signals give the trader an advantage by confirming an entry into a downtrend as it weakens and just before it turns into an up trend. It is also used to get out of an up trend as it weakens, and before it collapses into a downtrend. The divergence signal does not occur every time a trend changes, but when it does, it delivers a strong confirmation signal that a trend break is likely.
RSI divergence signals often appear in advance of a trend change, but they are not very good at suggesting the time of a trend change. The divergence signal may appear just as the trend changes, as in the chart extract, or several weeks before. Traders use the RSI divergence as an early warning signal to enable them to prepare for a trend change.
When the RSI and price chart lines move in the same way we get a confirming signal that the existing price trend is unlikely to change. These signals are not very important because we can get the same information from just looking at the chart.
The RSI is one of the very few oscillator style indicators where trend lines and support and resistance lines can be effectively used. These are used as signals to confirm the trend shown on the price chart. When other chart patterns suggest action, then the RSI trend line might also confirm this. When the RSI is used like this it does not give the trader any distinct advantage.

-By Daryl Guppy

Gap Trading Tips

2010-04-30T00:31:00.000+05:30

Know the zone! Where the gap opens relative to prior day support and resistance (e.g. Open, High, Low, Close) will greatly influence its probabilities of filling, as well as the optimal placement of your stop and target.
It’s a three legged stool. To maximize profits focus on gap selection, stop placement, and target optimization. It takes all three.
Don’t try to kiss all the pretty girls (or guys)! With gap trading, it pays to be selective. So, when in doubt, sit it out.
The return may not be worth the risk. Just because a gap is small and has a high probability of filling does not mean that it is worth trading. Profit expectancy, not probability of winning, is the key.
‘Tis the season! Understanding the historical calendar tendencies of your market can help affirm a winning setup, as well as help you avoid losers.
The worse it looks, the better it works. And vice versa (most of the time). Don’t let pre-market action overly influence your decision to fade a gap or not.
The news is noise. Don’t worry about the financial or economic news that caused the gap. It will only add unnecessary confusion and second-guessing.
Low hanging fruit is the sweetest. Entering at the market open catches all the easy winners. Waiting to enter after the open misses the easiest winners and catches all of the losers.
Like money sitting on a table... Many gap setups are prone to continuing through the prior close after filling. Know the personality of your gap setup and when to hold through the gap fill for an extended target, or when to close before the gap fills.
Size matters. Trade the position size that does not overly stress you, financially or emotionally, even if you have three or four losers in a row.
Watch out for the BLUDs. Fading gaps Below the Low of a (prior) Up Day is only profitable about 50% of the time historically.
The three amigos. Don’t forget about the other two gap plays: “Forget the Fade” (i.e. go-with) and “Fade the Fill.” They can add winning setups to your trading tool box.
Focus on the horizon. Let the long term probabilities work to your advantage and don’t try to guess which trade will work or not. Have a plan, follow your rules, and accept that losers are the cost of doing business.

via - http://www.thegapguy.com

9 Rules for Trading Divergences

2010-03-20T23:49:00.000+05:30

There are nine cool rules for trading divergences. Learn 'em, apply 'em, and make money. Ignore them and go broke.

1.

In order for divergence to exist, price must have either formed one of the following:

Higher high than the previous high
Lower low than the previous low
Double top
Double bottom

Don't even bother looking at an indicator unless ONE of these four price scenarios have occurred. If not, you ain't trading divergence, buddy. You just imagining things. Immediately go see your optometrist and get some new glasses.

2.

Okay now that you got some action (recent price action that is), look at it. Remember, you'll only see one of four things: a higher high, a flat high, a lower low, or a flat low. Now draw a line backward from that high or low to the previous high or low. It HAS to be on successive major tops/bottom. If you see any little bumps or dips between the two major highs/lows, do what you do when your significant other shouts at you - ignore it.

3.

Once you see two swing highs are established, you connect the TOPS. If two lows are made, you connect the BOTTOMS. Don't make the mistake of trying to draw a line at the bottom when you see two higher highs. It sounds dumb but peeps regularly get confused.

4.

So you've connected either two tops or two bottoms with a trendline. Now look at your preferred indicator and compare it to price action. Whichever indicator you use, remember you are comparing its TOPS or BOTTOMS. Some indicators such as MACD or Stochastic have multiple lines all up on each other like teenagers with raging hormones. Don't worry about what these kids are doing.

5.

If you drew line connecting two highs on price, you MUST draw a line connecting the two highs on the indicator as well. Ditto for lows also. If you drew a line connecting two lows on price, you MUST draw a line connecting two lows on the indicator. They have to match!

6.

The highs or lows you identify on the indicator MUST be the ones that line up VERTICALLY with the price highs or lows.

7.

Divergence only exists if the SLOPE of the line connecting the indicator tops/bottoms DIFFERS from the SLOPE of the line connection price tops/bottoms. The slope must either be: Ascending (rising) Descending (falling) Flat (flat)

8.

If you spot divergence but price has already reversed and moved in one direction for some time, the divergence should be considered played out. You missed the boat this time. All you can do now is wait for another swing high/low to form and start your divergence search over.

9.

Divergences on longer time frames are more accurate. You get less false signals. You will also get less trades but your profit potential is huge. Divergences on shorter time frames will occur more frequently but are less reliable. I personally only look for divergences on 1-hour charts or longer. Other traders use 15-minute charts or even faster. On those time frames, there's just too much noise for my taste so I just stay away.

MOVING AVERAGES: TRADING PATTERNS

2010-03-20T20:10:00.000+05:30

Running Cup and Handle

The cup-and-handle (1) is typically a major reversal pattern that often precedes large rallies. It is formed when a stock sells off, bottoms, and then begins to rally, creating a "cup." After the rally, the stock drifts lower, forming the "handle" of the pattern. According to William O'Neil, who popularized the pattern, the best cup-and-handle candidates are stocks that already have staged a strong rally.

One way to measure the “strong rally” would be to use the 50-day moving average. As long as a stock remains above the 50-day moving average, it can be considered to be in an intermediate-term uptrend. Therefore, cup-and-handles that formed at or above the 50-day moving average are dubbed “running” as the market continues to “run” while the pattern is formed. The theory is that it combines a bottoming/correction formation with trend -- the best of both worlds.

Chart 1: Running Cup and Handle. Notice the cup forms at and above the 50-day moving average. Source: The Tradehard Guide to Conquering the Markets.

Expansion Pivots

As mentioned above and in previous articles, the 50-day simple moving average provides a point of reference for many institutions and large traders. Jeff Cooper has observed that “a stock will trade around its 50-day moving average for a period of time, and then without warning explode either to the upside or downside. This explosion often follows through for at least a few days…”(2). His strategy looks for a wide-range day that occurs in a stock that is trading at its 50-day moving average and then seeks to enter a position in the direction of that expansion.

Chart 2: Expansion Pivots. This set-up looks to enter on follow-through after wide-range movements at the 50-day moving average.

Holy Grail

In Street Smarts, Connors and Raschke showed that strongly-trending markets often retrace to the moving average before re-asserting themselves. If you think about it, this makes sense as markets often thrust/correct and then thrust again -- similar to the pullback pattern. Essentially the set-up looks for a strongly-trending market as measured by high ADX followed by a retracement to the 20-period exponential moving average. They jokingly dubbed this pattern the “Holy Grail”.

Chart 3: The Holy Grail. The pattern seeks to capitalize on a resumption of a strong trend as measured by a high ADX reading after retracements to the moving average.

Daylight Breakouts

Often, markets will trade around the moving average. They will have a slight rally (or selloff) and then return to the moving average. This is known as reversion to the mean (average) and has been discussed in previous articles. On occasion, the market will break free and begin to trend away from the moving average. While looking for a long-term trend-following system for the commodities markets, I notice that these trends or breakouts from the moving averages are often preceded by a period of at least two days, where the lows (for uptrends) or highs (for downtrends) fail to touch the moving average. This “gap” above and below the moving average was dubbed “daylight” by a fellow trader as you could see “daylight” in-between the price bar and the moving average. The original system, The 2/20-Day EMA Breakout System(3), used a 20-day exponential moving average and is described below in figure 1. Once the entry qualifications were met, a buy entry was placed above the two-bar high. Short sales are reversed. Setups for the pattern are shown in Chart 6, February 2000 Gold Comex.

Figure 1: The 2/20 EMA set-up. Source: Technical Analysis of Stocks and Commodities, December 1996 Issue.

Chart 4: February Comex Gold. Notice the 2/20 EMA Breakouts (or “Daylight” Breakouts) requires the market to trade above the two-bar high of the set-up for longs and below the two-bar low for shorts. If the market fails to pass these points then there is no trade.

Like most trend-following systems, Daylight Breakouts are prone to large drawdowns (losses to equity) when traded on a purely mechanical basis as markets only trend about 30% of the time. However, when used on a discretionary basis, combined with money management and/or additional technical indicators (i.e. a strong underlying trend) it can be a useful tool. Also, you might consider varying the lengths (and types) of moving averages used depending on your trading style. For instance, short-term traders may consider using a 10-period moving average whereas longer term traders may consider a 50-period moving average or longer.

Conclusion and Series Summary

In the first part of the series we defined the different types of moving averages. These included the simple, weighted and exponential moving averages. These different types of averages essentially behaved the same except in strong trends and breakouts when the weighted and exponential moving averages tended to “catch up” faster to current prices. In Part II, we looked at the characteristics of moving averages such as reversion-to-the-mean and the drop-off effect. We also looked at general uses which included support/resistance or reference points and using the slope of the moving average to measure trend. Finally, we showed more specific set-ups which seek to capitalize on these features.

So which moving average or set-up is best? It all boils down to personal preference and trading style. I encourage you to study the different types of moving averages and the above set-ups. Modify them to your liking or create your own methods.

By David Landry

200-Day Moving Average

2010-03-20T19:00:00.002+05:30

STOCKS ABOVE THEIR 200-DAY MOVING AVERAGE

In today's article I will discuss another key item that I use to gain a comprehensive picture of the state of the overall market--the percentage of stocks now trading above their own 200-day moving average. (To avoid repeating this long phrase, I'll just refer to this indicator as "% above 200.")

The concept here is simple. The 200-day moving average is perceived to be the dividing line between a stock that is technically healthy and one that is not. (To review how to calculate a moving average, please visit this link.) Some traders use the simple moving average for this measure. Meanwhile, others employ exponential moving averages, which give more weight to recent data. A stock that is trading above its 200-day moving average is said to be in an uptrend and is being accumulated; one below it is in a downtrend and is being distributed.

On the surface, it seems as though the higher the "% above 200" goes, the more bullish the market is (and the lower it goes, the more bearish). In practice, however, the reverse is true. Extremely high readings are a warning the market may soon reverse to the downside. High readings reveal that traders are far too optimistic. When this occurs, fresh new buyers are often few and far between. Meanwhile, very low readings signify the reverse; the bears are in the ascendancy and a bottom is near.

So, now that we understand the significance of very high or low readings on this indicator, we need to determine exactly what levels represent high and low readings. To interpret this indicator, four parameters are key: 20 and 40 on the low side and 70 and 90 on the high side. Throughout the last 20 years, readings around 20 have consistently marked key reversal areas. As the chart below shows, the 20 level marked Wall Street's bottom in October 2001, late July 2002 and October 2002. (I've circled each of these reversal areas below). With this in mind, when the % above 200 nears the 20% level, swing traders should be on the alert for a sharp, V-shaped reversal.

When the percentage of stocks above their 200-day moving average hits 20%, the subsequent rally is often capped at the 40% level. This level provided resistance in August 2002 and January 2003 and correlated with bear market rally peaks. When the official bull market began in March 2003, the number of stocks above the 200-day moving average decisively broke out above the 40 level. From there, it trended higher for the remainder of the bull market, ultimately reaching a peak just above 90.

On the flip side, swing traders should be very cautious when the number of stocks above their 200-day moving average goes above 85%. Historically, readings in this area have precipitated either a major correction or a bear market. The reading above 90%, which lasted through February and the early part of March 2004, was the most extreme reading I could find going back seventeen years to 1987! When it reversed in early April of 2004, it led to the official bear market signal.

When a reading peaks above 85%, 70% becomes an important support level. A break of 70% after the percentage figure has hit the high-80s or low-90s is a warning that, at the very least, an important correction is unfolding.

Swing traders can also examine the % above 200 using trendline analysis. The most effective way to do this is to draw trendlines on both the underlying NYSE (New York Stock Exchange) chart and the % above 200 chart. A break in the % above 200 trendline will provide you with confirmation of the message given off by the underlying price chart.

What is the indicator currently saying? Recently, we've seen a massive deterioration in the stocks trading above their own 200-day moving average. In early April 2004, the % above 200 indicator broke its up trendline. At that time, the number of stocks above their own 200-day moving average sat at historically high levels just below 90%. However, it has since fallen to 44%! That is an extremely rapid drop. So far the decline in price as measured by the NYSE has been relatively limited. It seems likely that price will need to catch up with the % above 200 indicator.

At 44%, the decline in the % above 200 indicator does not appear complete. Remember, it normally takes a reading near 20% before the market is oversold enough to turn around. That kind of bottom seems at least a couple of months away. Historically, the 40% level has seldom provided a platform from which the market has managed to mount a reversal.

In judging which way the overall market will move next, swing traders have a variety of tools at their disposal. Among them are price charts and indicators such as RSI and stochastics, both of which are based on price. In addition, over the past several months I've introduced you to a host of other measures that you can use to interpret the overall market. In the next installment of this "Inside The Black Box" series I'll connect the dots and will weave together these overall market indicators into a cohesive picture.

Good trading!

Dr. Melvin Pasternak
Editor
The StreetAuthority Swing Trader

How to find breakout stocks

2010-03-02T19:00:00.000+05:30

There are many ways to find breakout stocks. My method consists of two discrete scans, which each must pass before I buy a stock. Many investors depend on technical analysis alone, while others depend on fundamental analysis. I depend on both. The two parts of my method scan for technical and fundamental soundness.

1) Technical scanner
This is the first scanner to run. The scan consists of finding all stocks that are breaking out to new 52-week highs on very high volume. The technical scanner is necessary because I only want to invest in stocks that are taking off. I don't want to waste my time with sleepers.

2) Fundamental scanner
The fundamental scanner is key. You don't want to just jump into any stock that is breaking out, following the momentum trade of the day. If you did this you would find yourself constantly 'behind the 8-ball'. The fundamental scanner checks many fundamental aspects of the companies behind the stocks that passed the technical scan. Things like Sales, margins, return on equity, earnings growth, institutional ownership, etc. This is absolutely necessary. In order for large funds to get excited about a stock, there often needs to be great fundamental growth behind the company.

If a stock passes both scanners then I simply buy it.

Taken together, this is how you find breakout stocks that are going to make you a lot of money. Of course, managing a trade once you have invested is another story all together.

via - stockchat.com

James16 price action patterns

2010-02-27T23:49:00.000+05:30

James16 price action patterns

WOLFE WAVE - An Outlook

2010-02-16T23:21:00.001+05:30

Q. What is the Wolfe Wave?

Ans. Simply put, the Wolfe Wave is a natural rhythm that exists in all markets. It is made up of waves of supply and demand that form their own equilibrium.The key to its accuracy is in properly identifying the 1, 2, 3, 4 & 5 points. These are what give it its proper balance of equilibrium. It is very important to identify the dominant Wave. It is somewhat like recognizing those 3-D pictures. After a while a smile comes to your face and you say: "WOW, I see it."

Q. How to find them these points?

Ans. There are rules for every point in both bullish and bearish formations.

Rules for bullish formation .

1 .The 2 point is a top.

2.The 3 point is the bottom of the first decline.

3. The 1 point is the bottom prior to point 2 (top), that 3 has surpassed.

4. The 4 point is the top of the rally after point 3.

5. The 5 point is the bottom after point 4 and is likely to exceed the
ended trend line of 1 to 3. This is the entry point for a ride to the
EPAline (1 to 4).

6. Estimated Price at Arrival (EPA) is trend line of 1 to 4 at apex of
extended trend line of 1 to 3 and extended trend line of 2 to 4.

7. Estimated Time of Arrival (ETA) is apex of extended trend line of 1 to 3
and 2 to 4.

8. The Time take b/w point 1 to 3 should be equal to that of point 3 to 5.

Robin(Visit this link to know more about wolfe wave)

How You Could Have Seen Imclone's Implosion Coming

2010-02-06T03:07:00.000+05:30

Warning: This will be an "I told you so" column. We're going to look at a recent horror story and see why you should have bailed out by now. If it hits too close to home, you might want to move on and read something a little more pleasant. We're taking no prisoners today.

The RealMoney staff love to flutter their wings about the latest blowups. But I have a confession to make. I think the companies we chatter about are extremely boring.

Enron? That's an extinct bird, isn't it? And although I think Halliburton is a beautiful actress, she doesn't look that good in asbestos.

My problem with companies like Enron and Halliburton is they don't have four letters. After all, the Nasdaq is where I spend most of my time. It's also where other traders hang out, because of the direct-access systems. So how about a little more gossip about OTC bloopers, screwups and nose dives?

Momentum favorite ImClone Systems is a good place to start. It's fallen over 50% in the last three weeks and may not stop until it hits ground. In fact, every time knife-catchers step in to call a bottom, they wake up the next morning with long blades planted firmly in their backs.

It's easy enough to see where the five-month ImClone rally ended. After all, that's why they call it a broken trend line. Now this routine event isn't the end of the world. Broken rallies often lead to sideways markets, not death spirals. But sideways isn't nearly as good as up, so we'll mark the breakdown as Warning No. 1.

Warning No. 2 comes just two bars later, when the stock breaks the 50-day moving average on strong volume. Definitely not good news if you own the stock. In fact, it gives investors a very good reason to sell. The stock then waves another red flag. Price bounces back to the 50-day moving average from below but fails to break it for four sessions. Hear that ominous sound? Warning No. 3 just rang a very loud bell.

OK, this is getting serious. The selloff expands out of the failed test and closes at the low -- right at the 100% retracement of the last rally. This level should provide strong support and stop the selloff. So how come day-traders didn't step in and bounce the stock before the close? Members of the jury, I give you Warning No. 4.

Armageddon strikes the next day. Price rips a 19% gap on high volume and breaks the 200-day moving average. Enter Warnings No. 5 and No. 6. I wish that was the end of the story, but it isn't. While the gap does great technical damage on the daily chart, watch what happens when we zoom out and look at the long-term chart.

Warning No. 7 nails the coffin shut. The gap triggers the failure of a multiyear channel breakout. This opens the door for a trip all the way back to the lower $20s.

via-tradingday.com

Bilateral Trade Setups

2010-02-05T16:28:00.000+05:30

When it comes to trade setups, it's not always an either-or situation. In fact, you can double your fun with bilateral trade setups.

Start by overcoming directional bias when you look at a price pattern. Although you may see it in your mind as a long or a short, chances are it will work in either direction. The trick is to let the price action tell you which way to go.

Let's back up a step and see how this works. Many patterns exhibit well-defined support and resistance. Bilateral setups use both levels for trade execution. A long entry is signaled if price breaks resistance to the upside. Conversely, a short sale is signaled if price breaks support to the downside. But you still have more work to do before taking a bilateral trade. After all, making money is the whole point of the exercise.

Every trade setup generates a unique reward/risk profile. In other words, it tells you how much you stand to win or lose should you decide to take a position. Each side of a bilateral setup carries a different reward/risk ratio. Most of the time, one side shows more profit potential than the other side. This can be frustrating because the calculation is independent of the odds that either outcome will actually take place. So you may have a great, high-odds setup with little or no reward, or a lousy, low-odds setup that would earn a fortune if it ever happens.

The price trigger complicates bilateral trade entry. Trading signals come in all varieties. The best ones ring very loud bells within very narrow price levels. One classic example is a high-volume breakout through a major moving average. Bilateral strategies force you to locate trigger prices on both sides of the pattern. Many times one side will bark much louder than the other when price hits the associated trigger.

Bilateral setups work best when they fit into larger cycles that encourage price movement in either direction. For example, a stock drops off a broad rally into an extended correction. Smaller patterns within this correction may trigger short-term rallies or selloffs. Bilateral strategy lets the trader take advantage of the mixed environment and execute price swings in both directions.

Let's review the signposts of this two-way trading street. We need well-defined support-resistance levels, a defined reward/risk ratio on both sides of the equation, clean price triggers and a big picture that lets us execute in either direction. Sounds simple enough, and it is.

The difficulty lies in our ability to control bias and to let the market tell us which way to go. Very often the best trade is in the opposite direction from the most obvious outcome for that pattern. In other words, the majority piles in one way, but the profit comes from trading it the other way.

The good news about these fascinating patterns is they may tell you when the move is about to happen. Congestion often narrows toward a trigger point. We see this in triangle patterns where two trendlines converge in price and time. Bilateral setups may show this convergence through simple lines, or sometimes through more complicated volatility cycles.

Volatility drops off through the formation of most bilateral patterns. It tends to reach a definable low, and then trigger a sharp price expansion. Traders examine narrow range price bars near support or resistance levels in order to predict impending price triggers. They also study classic volatility indicators to locate these turning points in developing patterns.

Swing traders go long or short, depending on the opportunity. Bilateral setups cut their workloads by presenting two possible trades in a single pattern. So always look at both sides of the equation when examining a price chart. Then leave your bias at the door, and take whatever the market gives you.

via-tradingday.com

MY BEST DAYTRADING SETUP

2010-01-20T01:03:00.004+05:30

Day trading is not a cup of tea for every other trader in the market. Many think that trading is gambling or kind of luck infected game. But in reality it is a pure mental game which involves well defined strategies.

Over the years you would have observed that my trade levels are much sharper and almost perfect. The credit goes to the trading plan that I adopt. Now I would like to offer one of my well tested and successful day trading setup which guides you to make a definite daily income .Through this setup learn how to Make a Killing in the market, no matter it goes up or down, trade with confidence.

Those who are interested in this offer may mail me to get more details.

panguvanihan@gmail.com

Price Action Trading Method

2009-12-12T20:07:00.001+05:30

Swing Highs and Lows

The first thing that we need to recognise is what is a Swing High and Swing Low. This is probably the easiest part of price action and bar counting although the whole process gets easier with practice.

Market Phases

There are only three ways the market can go;

Up
Down
Sideways

With the swing high/low definition now in mind we can start to build some layers on to the chart to identify these market phases and start to do a simple count of these swing highs and lows.

In short

The market is going up when price is making higher highs and higher lows
The market is going down when price is making lower highs and lower lows
The market is going sideways when price is not making higher highs and higher lows OR lower highs lower lows

This may sound like child's play and a statement of the obvious but you will be surprised at how often people will forget these simple facts. One of the biggest questions I get asked is, which way is the market going? By doing a simple exercise you can see which way that price is going and decide on your trading plan and more importantly timing of a trade.

What do I mean by timing? It may be that you are looking for a shorting opportunity as the overall trend is down but price on your entry time frame is still going up (making HH's & HL's). There is, at this stage, no point in trying to short a rising market until price action start to point down (making LH's & LL's. More on this shortly).

Bias Changes

A Short or Bearish Bias Change occurs when the following sequence develops.

HH>HL>LH>LL>LH The bias change is confirmed when price moves below the las lower low made as highlighted on the chart.

Another way of saying this is 123 reversal and you are trading the pullback as your entry trigger (Red Line).

There are a few variations of this pattern but this is quite simply a price action bias change in its simplest form.

A Long or Bullish Bias Change occurs when the following sequence develops.

LL>LH>HL>HH>HL The bias change is confirmed when price moves above the last higher high made as highlighted on the chart.

Another way of saying this is 123 reversal and you are trading the pullback as your entry trigger (Blue Line).

There are a few variations of this pattern but this is quite simply a price action bias change in its simplest form.

Trending Price Action

After a bias change has been seen and confirmed, one of the phases that the market can then take is to start trending either up or down depending on the bias change previously.

In the chart below we can see what price ideally looks like when price is trending up and trending down. Each phase shows price making HH's & HL's on its way up and LH's & LL's on its way down.

Ranging Price action

Now this is where the chart can become interesting. By using the price action counting of the swing highs and lows we can know at a very early stage IFprice is going to start to develop range bound activity.

Price is not making new highs OR new lows

I don't mean all time highs/lows or new day/week/month highs/lows... just simply a new chart swing high or low. Price will start to stall and not make a new swing high/low and typically will stay contained within the last swing high and low that was made on the chart. Isn't that a simple definition?

Range rule definitions

Price doesn't make a new high or low on the move
If price stays contained within the last swing high and swing low to be made, price will remain range bound until it makes news move highs or lows.
Price confirms the range when a lower high and a higher low is made within the previous swing high and low.

In the chart below you can see that from the left side of the chart price is making LH's & LL's all the way to the first blue arrow which in real time would be the latest lowest low. Price then moves higher to make a HH. These two swing levels have been highlighted.

At the point of the chart, in real time, price needs to either start moving higher past the last swing high (red Arrow) making a new high OR move lower past the last swing low (blue arrow) making a new low. Until either of those things happens price will most likely remain range bound. In this example that is what happened.

Range considerations

Some considerations for identifying ranges at an early stage in real time are;

That price could be creating a pullback or bias change and as the chart unfolds for you a new high or low could be made voiding the potential range.
There are several definitions of a range one of the more common ones is that you are looking for a double touch of support and resistance. For me this is a little too late in the game as price may not create the double touch as in the example above. With this price action method you can identify the possibility of a range developing VERY early without having to worry IF price does or does not give you the double touch. As you can see with that definition you would interpret that price is not range bound at all but, you can clearly see visually that price is moving sideways without any definition.

Acronyms used

HH - Higher High
HL - Higher Low
LH - Lower High
LL - Lower Low

By Philip Newton
www.trading-strategies.info

Philip Newton is a professional trader and teaches new and experienced traders the skills needed to trade for a living. His live chat room is amongst the best in the industry. Inside the members area traders can watch videos of his trades and receive support for any question they may have. The live trading room is the heart of the website where the real learning begins. www.trading-strategies.info

The 9 Characteristics of Great Traders

2009-12-12T19:15:00.000+05:30

What separates the 10% that make money from the 90% that don't?

1. 10,000 hours

In his recent book Outliers: The Story of Success, Malcolm Gladwell describes the 10,000-Hour Rule, claiming that the key to success in any cognitively complex field is, to a large extent, a matter of practicing a specific task for a total of around 10,000 hours. 10,000 hours equates to around 4hrs a day for 10 years. For some reason most people that 'try their hand' at trading view it as a get rich quick scheme. That in a very short space of time, they will be able to turn $500 into $1 million! It is precisely this mindset that has resulted in the current economic mess, a bunch of 20-somethings being handed the red phone for financial weapons of mass destruction. The greatest traders understand that trading much like being a doctor, engineer or any other focused and technical endeavor requires time to develop and hone the skill set. Now you wouldn't see a doctor performing open heart surgery after 3 months on a surgery simulator. Why would trading as a technical undertaking require less time?

Trading success, comes from screen time and experience, you have to put the hours in!

2. Education, education, education.

The old cliche touted by politicians when they can't think of anything clever to say to their audience. The importance of education to success in trading cannot be placed on a high enough pedestal. You have to learn to earn, the best traders work obsessively to refine their edge further to stay ahead of the curve.

3. Think for yourself.

"NO! NO! NO!"... "Bear Stearns is not in trouble"..."Don't move your money from Bear! That's just silly! Don't be silly!"

A quote from well known stock guru Jim Cramer aired on CNBC days before Bear Stearns lost 90% of its value. Many followed this call and felt the obvious pain as a result. As the old saying goes, too many cooks spoil the broth; it is very much the same in trading. Successful traders blinker themselves from the opinions of others; they focus on their own analysis of fundamental and technical information.

4. Adapt or Die.

Market conditions change and technology advances, thus the conditions for trading are always evolving, the rise in mechanical trading is testament to that. The very best traders through a process of education and adaptation are constantly staying ahead of the curve and creating ever new and ingenious methods to profit from the markets evolution.

5. Fail to plan, you plan to fail.

The best traders have a well documented plan; they know exactly what they are looking for and follow that plan to the letter. Their preparation for a trade starts long before the market open, it is this meticulous planning and importantly adherence to that plan that helps them avoid the biggest demons for any trader, over trading and revenge trading.

6. "Be like Machine"

As human beings emotions pay a key role in our existence, for a trader emotions can be a source of great pain. Trading psychology and the management of your emotions in a trade play a key role in overall success. Fear and greed can cut your winners short and let your losers run. Dealing with emotions follows on from your plan; the more robust your plan the less likely you are to fall into the emotional mine field.

7. Know your tools

Every trader has a set of tools they use, DOM, Charts, News feeds etc. These tools are a trader's bread and butter; they are the most vital part of a trader's arsenal, without which it would be impossible to trade. The best traders have mastered their order entry methodology, they know all about the features they need from their charts. This mastery of their tools, allows the trader to get the very best out of the resources they have available to them and ensures perfect execution of their trading ideas.

8. Know Thyself

Behind all the egos and excess, the best traders know their limitations; they focus on what can go wrong in a trade, and expend a lot of energy in limiting and controlling their risk before thinking about profits. They have a heightened sense of self-awareness and focus on incremental self improvement.

9. Profit & Loss

The best traders focus on the trade itself rather than the P&L; they view each trade as a technical exercise and focus on getting the most out of the market in accordance with their plan. They do not think in terms grocery payment, the electric bill and the desire to make X amount to cover a mortgage payment. Focusing on the money behind a trade can cloud technical objectivity.

In Conclusion

The greatest traders work hard to get ahead and even harder to stay ahead. Through increased and niche knowledge they constantly adapt with the market and remain profitable in every environment. Drive, tenacity and the will to succeed is the greatest edge of every successful trader.

Aamar Shehzad is Chief Technical Analyst and Managing Director of Technical Analysis provider Pivotfarm.com. Prior to creating Pivotfarm.com, Aamar worked as an independent trader and analyst, he is a regular speaker at trading seminars and expos and is currently authoring a book on trading using Support & Resistance entitled 'Support & Persistance'.

via - http://www.tradingmarkets.com

Andrew's Pitchfork

2009-12-07T19:52:00.001+05:30

Andrew's Pitchfork, otherwise known as median line studies utilizes the concepts of support, resistance, and retracements (see: Support & Resistance). As is visually depicted below, Andrew's Pitchfork consists of:

Handle
Resistance Trendline "tine"
Median Line
Support Trendline "tine"

Steps to creating a Pitchfork

Find a significant pivot or retracement (in the chart above, the lower left corner)
Find the next significant pivot or retracement (the dotted blue line connects the first pivot to this second pivot)
Find the next retracement (in the chart above, the solid blue line starting from the left and going down to the right)

Charting software finishes the pitchfork by creating the upper resistance "tine", the lower support "tine", and the median line. Note: "tine" is the terminology used by the creator of Andrew's Pitchfork, Dr. Alan Andrews.

Interpreting Andrew's Pitchfork

The same rules for support and resistance apply to Andrew's Pitchfork. Look to buy at support and look to sell at resistance (see: Support & Resistance). Also, prices are thought to gravitate towards the median line as depicted in the chart above of the S&P 500 exchange traded fund. The chart above shows the long-term view (1 year 6 months) of the stock market; however, Andrew's Pitchfork can be used for shorter time frames.

via - http://www.onlinetradingconcepts.com

Moving Average Crossovers

2009-11-28T18:52:00.000+05:30

Let's talk about the Golden Cross and the Death Cross. No, we're not opening a deck of cards and telling your fortune. These colorful terms refer to patterns you probably use every day in your trading but don't refer to by these names. Along with its many cousins, they comprise a whole division of technical analysis. You might know them better as moving average crossovers.

Moving averages emit vital market data, but all of them exhibit one common limitation: They lag current events. By the time a 20-bar average curves upward to confirm a trend, the move is already underway and may even be over. While faster incarnations (such as exponential averages) will speed up signals, all of them ring the trading bell way too late.

Multiple moving averages overcome many flaws of the single variety. They're especially powerful when used in conjunction with price patterns. For example, pick out a long-term and a short-term average. Then watch price action when the averages turn toward each other and cross over. This event may trigger a good trading signal, especially when it converges with a key support or resistance level.

Averages display all the common characteristics of support/resistance. For example, one average will often bounce off another one on a first test, rather than break through right away. Then, like price bars, the odds shift toward a violation and crossover on the next test. Alternatively, when one average can't break through another average after several tries, it sets off a strong trend-reversal signal.

Different holding periods respond to different average settings. One-to-three-day swing trades work well with averages that maintain a 3x to 4x relationship between shorter and longer periods. This allows convergence/divergence between different trends to work in the trader's favor.

For example, the daily chart may show a strong uptrend, while the 60-minute chart begins a deep pullback. A 40-day average will stay pointed in the trend direction for a long time, but a 13-day average (3x13=39) will turn down quickly, and head straight for the longer average. The point where they intersect represents a major support level.

Crossovers mark important shifts in momentum and support/resistance regardless of holding period. Many traders can therefore just stick with the major averages and find out most of what they need to know. The most popular settings draw charts with a 20-day for the short-term trend, a 50-day for the intermediate trend and a 200-day for the big picture.

Long-term crossovers carry more weight than short-term events. The Golden Cross represents a major shift from the bears to the bulls. It triggers when the 50-day average breaks above the 200-day average. Conversely, the Death Cross restores bear power when the 50-day falls back beneath the 200-day. The 200-day average becomes major resistance after the 50-day average drops below it, and major support after breaking above it. When price gets trapped between the 50-day and 200-day averages, it can whipsaw repeatedly between their price extremes. This pinball action marks a zone of opportunity for swing trades.

Crossovers add horsepower to many types of trading strategies. But try to limit their use to trending markets. Moving averages emit false signals during the "negative feedback" of sideways markets. Keep in mind these common indicators measure directional momentum. They lose power in markets with little or no price change.

For years, technicians have tried to filter crossover systems through trend-recognition formulas in order to reduce whipsaws. You can try this for yourself, or just look for price patterns that tell you the crossovers are worthless.

Persistent rangebound markets limit the usefulness of all types of average information. All moving averages eventually converge toward a single price level in dead markets. This flatline behavior yields few clues about market direction. So stop using averages completely when this happens, and move to oscillators (such as Stochastics) to predict the next move.

Five Fibonacci Tricks

2009-11-28T18:46:00.001+05:30

Fibonacci jumped into the technical mainstream late in the bull market. Futures traders had it all to themselves until real-time software ported it over to the equity markets. Its popularity exploded as retail traders experimented with its arcane math and discovered its many virtues.

Fibonacci ratios describe the interaction between trend and countertrend markets -- 38%, 50% and 62% retracements form the primary pullback levels. Apply these percentages after a trend in either direction to predict the extent of the countertrend swing. Stretch a grid over the most obvious up or down wave, and see how percentages cross key price levels.

Convergence between pattern and retracement can point to excellent trading opportunities. Keep in mind that retracements work poorly in a vacuum. Always examine highs, lows and moving averages to confirm the importance of a specific level.

Discord between retracement and the underlying pattern generates noise instead of profit. Move on to a new chart when nothing lines up correctly. This divergence generates most of the whipsaw in a price chart. Alternatively, strong phasing between Fibonacci and pattern exposes highly predictive reversals at narrow price levels.

Let's look at five tricks to improve your Fibonacci skills. Add these twists and turns to your toolbox and apply them to your next trade. I promise they'll serve you very well in the years ahead.

First Rise/First Failure

First Rise/First Failure marks the first 100% retracement of a trend within your time frame of interest. It provides an early reversal warning after a new high or low. The 100% retracement violates the major price direction and terminates the trend it corrects. From this level, the old trend can reestablish itself if it breaks through the old 38% level. More often, traders will use that level to enter low-risk positions against the old trend.

Parabola Hunt

Parabolic movement tends to occur between the 0%-to-38% and 62%-to-100% Fibonacci levels in all trends. This tendency offers a great tool for finding the big moves when looking for trades. Watch for congestion to form at the 38% or 62% level. Then use a simple breakout or breakdown strategy when price moves past it. The next thrust can be dramatic, with price moving like a magnet back to an old high or low. Of course, the strategy only works when you can find these levels in advance.

Continuation Gap Extensions

You can often target the exact price a rally or selloff will end at by using the continuation gap as a Fibonacci extension tool. Identify the gap by its location at the dead center of a vertical price wave. Then start a Fib grid at the beginning of the trend and extend it so the gap sits under the 50% retracement level. The grid extension points to the terminating price for the rally or selloff.

Overnight Grids

Find an active stock and start a grid from the high (or low) of a session's last hour. Stretch the grid to the opposite end of the next morning's first hour low (or high). This defines a specific price wave traders can use to uncover intraday reversals, breakouts and breakdowns. The overnight grid also offers a way to trade morning gaps. The gap will often stretch across a key retracement level and target low-risk entry on a pullback.

Second High/Low

Many traders can't figure out where to start a Fib grid. Here's a trick to help you place it where it'll do the most good. The absolute high or low in a price wave isn't the best starting point for a grid most of the time. Instead, look for a small double bottom or double top within the congestion where the trend began. Swing one end of the grid over this second high (or low), instead of the first. This will capture a specific Elliott Wave that conforms to the trend you're trying to trade.

Fibonacci

2009-11-01T21:16:00.001+05:30

Fibonacci

Options

2009-10-29T14:17:00.000+05:30

Options

Welcome to the mysmp.com options trading education center. Now, more than ever, is an extremely important time for traders to learn what option trading is all about and also to understand how they can use options to help control risk during times of heightened volatility. While many traders use option contracts to help mitigate risk, others will use them to speculate on volatility and direction. Whatever type of trader you may be, it is important to understand your risk profile and investment objectives before selecting a strategy.

For the newbie’s to option trading, you can get started with a quick primer on calls and puts with our stock options introduction article above. Here you will be given an overview of calls & puts and also be provided with descriptions of the various components which go into the pricing of an option such as expiration date, strike price and moneyness. Be sure to review our glossary to get a more detailed explanation on these subjects.

Above, you will find options strategies for every type of investor and every type of market. You will find a broad array of strategies that can be used in bull markets, bear markets, or flat markets. For example, bull call spreads can be used in bull markets to take advantage of upward prices while bear put spreads can do the same in bear markets. In those times where there is no volatility at all, you want to be short options to take advantage of their time decay; the short straddle is a great example of this. Be sure to understand the potential risk and reward scenario as well as the breakeven points before establishing a position. Remember, a net buyer of options (debit spread) will have a defined risk while a net seller (credit spread) will have an unlimited risk profile.

Take your time and learn how to trade these option strategies at your own pace. It is advisable to start with the more basic strategies which only consist of a single leg such as the covered call, married put, naked put, or synthetic call. Once you have these strategies mastered, you can move on to double leg strategies such as the straddle and strangle. For the more advanced options traders, triple and quadruple leg option strategies may be reviewed such as the butterfly and condor spreads.

via - http://www.mysmp.com/options.html

Welcome to PANGUVANIHAN

2009-10-16T23:13:00.001+05:30

Dear friends,

Welcome to Panguvanihan. Panguvanihan..that is Stock Trader, is a new addition in line with my existing Tamil Blog http://panguvaniham.wordpress.com/ and English blog http://paisapower.blogspot.com/ . Panguvaniham closely follows the daily market movement in which I try to give my views in easy Tamil, whereas Paisapower is purely an educational platform for both the traders and investors.

From today...here in Panguvanihan I will be sharing my views and ideas about potential scripes, which is meant for short term and long term investment. All the suggestions given in this blog are purely for educational purpose and hence you are requested to do your own analysis, homework before taking any trade decisions.

I Wish you good luck and Happy trading.

-Saravanakumar

How is the SENSEX Calculated !

2009-10-15T11:48:00.001+05:30

For the premier Bombay Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called The Stock Exchange, Mumbai by paying a princely amount of Re 1.

Since then, the country’s capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.

Sensex is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, Sensex is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies.

The base year of Sensex is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media.

The Index was initially calculated based on the “Full Market Capitalization” methodology but was shifted to the free-float methodology with effect from September 1, 2003. The “Free-float Market Capitalization” methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.

Due to is wide acceptance amongst the Indian investors; Sensex is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the Sensex has over the years become one of the most prominent brands in the country.

The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The Sensex captured all these events in the most judicial manner. One can identify the booms and busts of the Indian stock market through Sensex.

Sensex Calculation Methodology

Sensex is calculated using the “Free-float Market Capitalization” methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of Sensex is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of Sensex involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor.

The Divisor is the only link to the original base period value of the Sensex. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate Sensex every 15 seconds and disseminated in real time.

Dollex-30

BSE also calculates a dollar-linked version of Sensex and historical values of this index are available since its inception.

Understanding Free-float Methodology

Free-float Methodology refers to an index construction methodology that takes into consideration only the free-float market capitalisation of a company for the purpose of index calculation and assigning weight to stocks in Index. Free-float market capitalization is defined as that proportion of total shares issued by the company that are readily available for trading in the market.

It generally excludes promoters’ holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a Free-float index is reduced to the extent of its readily available shares in the market.

In India, BSE pioneered the concept of Free-float by launching BSE TECk in July 2001 and Bankex in June 2003. While BSE TECk Index is a TMT benchmark, Bankex is positioned as a benchmark for the banking sector stocks. Sensex becomes the third index in India to be based on the globally accepted Free-float Methodology.

via- tips4trade

OptionsORACLE - Options TRADING Analysis Tool

2009-10-14T20:00:00.001+05:30

OptionsOracle is free tool for stock options trading strategy analysis, built for options traders.

Measuring Reward: Risk

2009-10-09T20:23:00.000+05:30

Why do great trade setups fail, while lousy ones move in our favor? The answer is quite simple, yet frustrating. Trading is an odds game, in which anything can happen at any time. Price will go where price wants to go, no matter how hard we hit the books, study the charts or pray to the deities. So rather than searching for the perfect trade, we're better off learning to control risk first.

You've forgotten the nature of risk if you can answer "yes" to any of the following questions. Do you still buy "how-to" books, even though you've traded for years? Do you sit in bad losses because you hate to be wrong? Do you reject market wisdom because you lost money trading it?

Measure reward:risk before taking a trade, and let it guide your open position. Price close to good support identifies a low-risk long setup. Price close to substantial resistance identifies a low-risk short sale. The distance between your trade entry and the next obstacle within your holding period measures the reward, and intended exit. The distance between the entry and the price that breaks the trade points to the risk, and unintended exit. Put the odds firmly in your favor by only taking trades with high reward, and low risk.

The best swing trades exit in wild times, just as advancing price approaches a strong barrier. Reward planning seeks discovery of this price before trade entry. This profit target sits at a level where risk will increase dramatically when price reaches it. Traders should exit immediately once this profit target is struck, or at least place a stop that locks in profit, in case of a reversal.

Every setup has a price that busts the trade. The safest trades need only a small move to signal a bad outcome, and the need to jump ship. This loss target changes dynamically after entry. Consider the impact of the last price bar on evolving reward:risk, and adjust the plan accordingly. Many traders find it difficult to absorb new information quickly. So they're better off sticking with the original plan, and using trailing stops to protect the position.

How do you know the price that kills the trade? You'll find it at the convergence of support-resistance boundaries on your setup. These usually turn up through combinations of violated moving averages, broken patterns and filled gaps. Every situation is different, so finding the loss target may require all of your trading skills.

Exit swing trades to book profits, take losses or close mediocre positions. A good exit is more valuable than a great entry. Emotions usually run high at both reward and risk targets. So take a deep breath and clear the mind before closing out a position.

Tips on Reward:Risk Management

- Watch the clock and become a market survivor. Market cycles affect price movement in many ways.

- Exploit market quirks in your entries and exits. Events like overnight gaps and options expiration can benefit positions, rather than hurt them.

- Enter smaller trades when signals don't line up well.
Good timing on bad stocks makes more money than bad timing on good stocks.

- The best signals converge through many different types of technical analysis.

- Use common sense and good mathematics in your profit and loss projections.

- The most profitable entries and exits come when the crowd is leaning the wrong way.

via - www.tradingday.com

Learn from your mistakes to master the art of investing

2009-09-07T19:39:00.000+05:30

The Thirukkural is an ancient non-religious literature that guides people on better living. Though written over 2,000 years ago by Thiruvalluvar in Tamil, the way of life advised by Thirukkural is still relevant today.

This article is an attempt to bring the wealth of knowledge embedded in Thirukkural about finance; accessible to everyone. Thirukkural is composed of 1,330 kurals in 133 sections of ten each.

A Kural is a couplet and each Kural is composed of 7 words spread across 2 lines [4 + 3 words]. The work on wisdom is divided into three major chapters - those that speak about Virtue, Wealth and Love.

Kural 411 says "Chelvathul chelvam sevichchelvam; achchelvam Chelvathul ellem thalai"

The translation of the Kural goes like - "The best wealth among wealths is that got by listening; this wealth is the leader of all wealths."

Learning from experience, may many times prove to be very costly in terms of the time, emotions and cost involved in the learning. So it is better if we could learn form the others too. Among the many ways to leverage learning of others including proper education, reading, listening is said to be best by Thiruvalluvar.

The philosophical meaning

The meaning of this Kural in a philosophical sense is that, one should not depend only on the material wealth. The wealth of knowledge got by listening to others' experiences will be ours for ever; whether we have material wealth or not. That way the wisdom that we have received is indestructible and hence is the best wealth one could get.

Role of listening in investing

Active listening is said to be one of the best ways to be a good communicator. It is also one of the best ways to make good investment decisions. Robert G Allen author of 'Nothing Down' a book that talks about acquiring real estate without putting any of our own money as down payment, talks of one of his ways to buy a property.

The rule is 100-20-10-1. The rule in detail goes like this, when we want to buy a property, we need to visit and see 100 properties; take quotes from 20 of those properties; enter into negotiation for 10 of those properties; ultimately buy one.

Effect of leveraging listening

The effect to our wisdom related to buying property is that, by listening to 100 people talking about their properties, we get to know how property is valued. What could be problems in managing those? Which type of neighbors is better for us? Are we paying for the built-up area or the living area?

How good is the ground water, sun shine, noise, dust, etc? Will the walls bear the effect of banging long nails or drilling needed for putting the wiring? Is the government having any plans for acquisition in that area? Is the new electric crematorium planned for the area next our apartment? Does the cat in the opposite house love to measure the length of roots in potted plants (We have 25 highly valued Bonsais)?; so on and so forth.

If we had not done the 100 to 1 act of painstaking listening, we may be a victim and may have to endure a period of life-long education on how not to buy a house. How many people have we seen buying a house just because some relative or colleague said the property has 'good value'? Are they all happy?

Leverage wisdom before investing in stocks

We have a lot of people giving us tips for investing in the stock market. Some of them are from good intensions of friends, relatives and colleagues. Some of them are from our brokers and some from professional paid tips providers. The leveraging of listening to gain wisdom applies also to the stock market.

The way to learn and to some times pull the tipster himself/herself from trouble is to ask the question-WHY? If the answer is that some one reliable said so and that is WHY? Probably the reason for the buy or sell is already past its time. So please do not do anything.

If however the suggestion to buy or sell is substantiated by a set of reasons, there may be some substance for buying. But again we need to do our own reasoning and searching to make the decision to buy or sell a stock.

Skepticism vs listening

The above argument is not to be skeptical to whatever the other person says. Rather it is not to be carried away by what ever others say. The active listening way to creating wealth is to be empathetic to the other person's words and derive knowledge. This wealth of wisdom that we get from others becomes ours and no one can take it away from us - come what may.

Kural 421 says: "Arivuatram kakkum karuvi cheruvarkku Ulazhikkal aha aran"

It means "For the king (head of the family, manager) wisdom acts as a tool for protection and also as wealth that the enemy cannot destroy". Listen better so you can learn better. Learn better so you can invest better.

Source:
BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.
Copyright 2009 www.BankBazaar.com. All rights reserved

Which Time Frame is better ?

2009-09-05T21:07:00.000+05:30

Time Frame Breakdowns

Which one is better?

It depends on your personality!

Let me give you a breakdown of the three to help you choose:

Time frame	Description	Advantages	Disadvantages
Long-term	Long-term traders will usually refer to daily and weekly charts. The weekly charts will establish the longer term perspective and assist in placing entries in the shorter term daily. Trades usually from a few weeks to many months, sometimes years.	Don’t have to watch markets intraday Fewer transactions means less paying of spreads	Large swings which require large stops Usually 1 or 2 good trades a year so patience is required Bigger account needed to ride longer term swings Frequent losing months
Short-term	Short-term traders use hourly time frames and hold trades for several hours to a week.	More opportunities for trades Less chance of losing months Less reliance on one or two trades a year to make money	Transaction costs will be higher (more spreads to pay) Overnight risk becomes a factor
Intraday	Intraday traders use minute charts such as 1-minute or 5-minute. Trades are held intraday and exited by market close.	Lots of trading opportunities Less chance of losing months No overnight risk	Transaction costs will be much higher (more spreads to pay) Mentally more difficult due to frequency of trading Profits are limited by needing to exit at the end of the day.

You have to decide what the correct time frame is for YOU.

MACD - An overview

2009-08-31T22:50:00.002+05:30

MACD - An overview

15 WAYS TO TRADE MOVING AVERAGES

2009-08-31T20:16:00.000+05:30

Reading a chart without moving averages is like baking a cake without Butter or eggs. Those simple lines above or below current price tell Many tales and their uses in market interpretation are unparalleled.

Simply stated, they're the most valuable indicators in technical Analysis.

You can trade without moving averages, but you do so at your own risk.

After all, these lines represent median levels where your competition Will make important buying or selling decisions. So it makes sense to Predict what they're going to do before the fact, rather than afterward.

Here are 15 ways you can manage opportunity through moving

Averages:

1. The 20-day moving average commonly marks the short-term trend, The 50-day moving average the intermediate trend, and the 200-day Moving average the long-term trend of the market.

2. These three settings represent natural boundaries for price

Pullbacks. Two forces empower those averages: First, they define Levels where profit- and loss-taking should ebb following strong price Movement. Second, their common recognition draws a crowd that Perpetrates a self-fulfilling event whenever price approaches.

3. Moving averages generate false signals during range-bound markets Because they're trend-following indicators that measure upward or Downward momentum. They lose their power in any environment that Shows a slow rate of price change.

4. The characteristic of moving averages changes as they flatten and Roll over. The turn of an average toward horizontal signifies a loss of Momentum for that time frame. This increase the odds that price will Cross the average with relative ease. When a set of averages flat line And draw close to one another, price often swivels back and forth Across the axis in a noisy pattern.

5. Moving averages emit continuous signals because they're plotted Right on top of price. Their relative correlation with price development Changes with each bar. They also exhibit active convergence divergence Relationships with all other forms of support and resistance.

6. Use exponential moving averages, or EMAs, for longer time frames But shift down to simple moving averages, or SMAs, for shorter ones.

EMAs apply more weight to recent price change, while SMAs view each Data point equally.

7. Short-term SMAs let traders spy on other market participants. The Public uses simple moving average settings because they don't Understand EMAs. Good intraday signals rely more on how the Competition thinks than the technicals of the moment.

8. Place five-, eight- and 13-bar SMAs on intraday charts to measure Short-term trend strength. In strong moves, the averages will line up And point in the same direction. But they flip over one at a time at highs And lows, until price finally surges through in the other direction.

9. Price location in relation to the 200-day moving average determines Long-term investor psychology. Bulls live above the 200-day moving Average, while bears live below it. Sellers eat up rallies below this line In the sand, while buyers come to the rescue above it.

10. When the 50-day moving average pierces the 200-day moving Average in either direction, it predicts a substantial shift in buying and Selling behavior. The 50-day moving average rising above the 200-day Moving average is called a Golden Cross, while the bearish piercing is Called a Death Cross.

11. It's harder for price to break above a declining moving average than A rising moving average. Conversely, it's harder for price to drop Through a rising moving average than a declining moving average.

12. Moving averages set to different time frames reveal trend velocity Through their relationships with each other. Measure this with a classic Moving Average-Convergence-Divergence (MACD) indicator, or apply Multiple averages to your charts and watch how they spread or contract Over different time.

13. Place a 60-day volume moving average across green and red

Volume histograms in the lower chart pane to identify when specific Sessions draw unexpected interest. The slope of the average also Identifies hidden buying and selling pressure.

14. Don't use long-term moving averages to make short-term

Predictions because they force important data to lag current events. A Trend may already be mature and nearing its end by the time a specific Moving average issues a buy or sell signal.

15. Support and resistance mechanics develop between moving

Averages as they flip and roll. Look for one average to bounce on the Other average, rather than break through it immediately. After a Crossover finally takes place, that level becomes support or resistance For future price movement

Investing in an IPO? Read this!

2009-08-24T07:27:00.001+05:30

Here is a simplified idea of how to analyse initial public offerings (IPOs) using technical and fundamental analysis.

There have been raging discussions during the past three years, both, when the Indian IPO market was booming and when it was crashing.

Should we invest in IPOs or rather buy the stock when it comes to the secondary market? The debate over this a long-drawn one with varying answers during boom and bust.

This article will try to give some tools and ratios, which help us decide whether to invest in an IPO or not at any time!

Analysis based on market value (market cap)

Market value in the case of an IPO can be defined as the number of shares available for subscription multiplied by the price per share plus the price per share multiplied by outstanding shares if any.

In the case of analysis, when there is a price band available, it's advisable to do the analysis based on the lowest price.

Check 1: Price to Sales (P/S) ratio

This number is derived by dividing the market value by the value of annualised sales. It can also be derived by dividing the price of a share by the sales per share. It is basically an indication of the amount the company is trying to garner from the market vis-a-vis its current business.

A rule of thumb for the P/S ratio when deciding on IPO investment is that lower the P/S ratio the better it is as an investment.

A word of caution is that it should not be the only parameter before deciding.

Check 2: Price to Earnings (or Loss) P/E ratio

This number is derived by dividing the market value by the annualised profits (loss) for the company. It is an indicator of the number of multiples that the market is ready to pay for the stock over its current profit levels.

If the profit is Rs 2,500 crore (Rs 25 billion) and number of equity shares is 1,000, then the P/E is 2.5. Meaning, the market is ready to pay 2.5 times the profit per share to buy the stock.

Thumb Rule for P/E with respect to IPOs

The lower the P/E, the better it is for the investor. In simple terms, a lower P/E means, you are getting to buy something that has the ability to reap high benefits at a very cheap price.

The irony is that during boom times uninformed investors get carried away by high P/E multiples.

Check 3: Price to Book value (P/B) ratio

The book value is defined as the difference between total assets and liabilities. In a more crude way, it is also defined as the amount that will be left back after paying all liabilities in case of a closure.

The P/B of an IPO is calculated as market value divided by the book value. It gives an idea on what value the market places on the stock based on its books.

Thumb rule: Lower the P/B the better. It would be advisable for a potential IPO investor to look for IPOs with low P/B. Some of these stocks are called value stocks.

Long-term investors buy such companies and hold on to them till they slowly but steadily grow their business till a day when the share prices might shoot up phenomenally and then exit with huge profits.

Check 4: Price to Tangible Book Value (PTBV) ratio

This number is derived by dividing the market value by the tangible book value. The Tangible Book Value (TBV) is equal to the book value of the company minus the intangible assets.

Intangible assets are those that cannot be seen or felt. Examples include IP rights, goodwill patents, etc. Similar to P/B, it can also be crudely seen as the amount an investor would get if the company ceases to exist and all its assets have to be sold.

The reason it is seen separately is that most intangible assets would be very difficult to sell in case of closure.

Thumb rule: Lower the PBTV the better. A PBTV of 0-1.0 (zero to one) means the company is trading at or below the worth of its own tangible assets. Once the mark crosses one, the risk for the investor too is proportionally higher.

In case of certain companies the PBTV could be negative too.

Check 5: Gross margin percentage

The gross margin percentage is derived by dividing the gross margin of the company (the margin before accounting for taxes, depreciation, expenses, etc) by the total value of sales. This gives an idea of what is the percentage of margins for any value of sales.

Thumb rule: Higher the gross margin the better. This in simple terms indicates that the company's product of service has a good margin of income. The higher the gross margin, the better would be the actual profit. For certain industries where costs are very high the gross margin percentage would be low.

In such cases, we need to analyse if it's higher than for other competitors in the same domain of business.

Check 6: Profit margin percentage

This number is derived by dividing the profits by total value of sales. Again, as in the case of gross margin percentage, higher the profit margin percentage, the better it would be to invest in the IPO of that company.

A word of caution, though. The gross profit margin percentage and the profit margin percentage should be analysed for at least 3-4 years to check for consistency.

Some companies might show higher margins due to one off reasons which might not hold true after the IPO.

All the above calculations need to be taken into consideration along with the analysis of the company's management, its business model, the sustainability of its product/service and other such fundamental parameters while deciding to invest in an IPO or not.

Source: BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.Copyright 2009 www.BankBazaar.com. All rights reserved

Is the stock market a gambling arena?

2009-08-22T22:22:00.002+05:30

Many people shy away from the stock market thinking it is a lot like gambling and some even think it is gambling. The vagaries of the stock market in the form of sudden spurts and dizzying falls only add fuel to this thought.

Adding fuel to the aversion is the past pain from few experiments -- many in their 40s are still not entering the market because they were hurt by the Harshad Mehta scandal!

Short-term trading versus Investing
The goals for any investor in the stock market change very dramatically based on whether he is a short-term player or a long-term one. In the short term, the market has to be perform the role of an income generator for the trader/investor. In the long term, it has to give capital appreciation for the investor.

The first thing to remember is that when we buy a stock (a share in any company), we get a part ownership in the company. We have a right to a part of the assets and a part of the profits that the company generates.

The price of the share will be reflected by the current and future profits of the company and also by the various forces that affect the business of the company. There are several macro-level factors such as the political, social, and international environment too that affect the business and hence the share prices.

Shares are best for the long-term investor
To generate income out of shares is possible in two ways:
Wait for the dividend. This income is going to be quite low compared to the market price of the share. Typical Indian dividend yield (dividend per share/market price of share) is in the range of 1% to 2%. Not quite attractive.

The other way is to generate trading gains. This is highly risk laden as inherently share prices follow randomness. The Random Walk Theory says that the events in the past do not affect the price of the shares in the future. Hence, it is not possible to predict the future price of shares. This means that to generate income by trading one has to speculate. That is gambling.
In the long run (three years and above), however, the scenario is different. There is sufficient control for the management of the company to steer it to success or failure. And this will be reflected in the stock market as rise or fall in the share prices.

As an investor in the company, we too get signs on whether to hold on to the share or to let it go. In the short run companies can fool its investors by changing some numbers and by making good presentations but in the long run to compete and to grow, they have to deliver value.

Returns in the long run
The stock market remains the undisputed and consistent leader for returns in the long run. In spite of the economy slowing down in India and going into a depression in many parts of the world, the historical Sensex returns are still very attractive.

The Sensex was formed as an index to reflect the stock market movements in the year 1979. The value at that time started at 100. On August 14, 2009 this figure stood at 15,400. This translates to a compounded annual growth rate of an amazing but true 18.28%.

We cannot see any other asset class giving such returns over the long term. Is there a reason why stocks perform so well in the long run? Yes, there are.

As business people, the promoters of the companies have an inherent reason for working towards the growth of their companies. Also businesses need time to grow and flourish.
As businesses compete with each other during their growth, they come out with creative, efficient and effective solutions to our needs and problems. This creates value for us as consumers and as investors. The country itself grows because of this.

Case in proof
A case in proof is a Bangalore family that was surprised by the value of shares that their late father had accumulated. He had bought shares of Hindustan Level Limited (HLL -- now Hindustan Unilever Ltd) consistently for over 20 years from whatever savings he could scrap from his earnings as an executive in a private company.

At one point in time HLL was the largest company in India and he loved the company. Post his retirement he continued to hold the shares in the material form itself. After he passed away, the family found that he had over Rs 1 crore (Rs 10 million) worth of HLL shares!

Stock market is not a gambling arena
The stock market is a tool for investing and wealth-creation. As discussed above it is a way to create wealth in the long term. It should not be mixed with gambling nor should it be used for that purpose.

Like gambling, it might be thrilling in the short term but too much indulgence in thrill at the expense of strong fundamentals could lead to major losses.

Ironically, the media and the people around us always highlight the extremities rather than focus on the fundamentals. For example, a person losing Rs 500,000 in one day is given more importance than someone earning the same amount in three years. This has been the major cause of creating a negative picture of the stock markets.

We need to come out this imagery and look at the broader and long-term picture. Long-term investors can never lose money in the stock market if the fundamentals are right!

BankBazaar.com
Source: BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.Copyright 2009 www.BankBazaar.com. All rights reserved

What Are The Different Types Of Technical Indicators?

2009-07-24T19:38:00.001+05:30

If you open up any charting package and attempt to put some form of technical indicator alongside the price, you will usually be presented with endless different technical indicators to assist you with your trading.

This can be slightly overwhelming when you first start using technical analysis, because you don't know which indicators are best, what information they are conveying, or how to interpret the data. So in today's article I'm going to briefly discuss the different types of technical indicators available to you.

There are basically four different types of technical indicators:

1. Trend indicators.

These indicators are used to indicate the direction of a trend. These are very useful because the basic rule is that you should always trade with a trend and not against it. Some examples of trend following indicators include Parabolic SAR, MACD and Moving Averages.

2. Momentum indicators.

Momentum or strength indicators are used to indicate the speed or strength of a move in price and are best used to determine a change in direction. They tend to be oscillating indicators showing overbought and oversold positions. Examples include CCI, RSI and Stochastics.

3. Volatility indicators.

These indicators, as the name suggests, show a change in volatility, which often leads to a change in price. Examples include ATR, Bollinger Bands and Envelopes.

4. Volume indicators.

Volume indicators are used to show the volume of trading in a particular currency. These are useful to confirm the direction of a trend or to signal a breakout. For example, if the pair trades in a narrow range and then breaks out on high volume, then this is a very bullish signal. Examples of volume indicators include Chaikin Money Flow, Demand Index and OBV.

The ideal charting set-up should have at least one indicator of each kind, but it's also important to remember that technical analysis is not foolproof. It's there to help you make trading decisions, but no indicator or set of indicators will give you a 100% success rate.

via - http://theforexarticles.com/

The 3 Duck’s Trading System

2009-07-12T23:56:00.001+05:30

Firstly I would like to say, I did not reinvent the wheel with this system, I have just added one or two ideas to a 60 period simple moving average (sma) to make it my own and named it “The 3 Duck’s Trading System” for obvious reasons as you will find out later on. The system is fairly straight forward and easy to use. Like a lot of trading systems it will be more productive when prices are moving in one direction and not stuck in a tight trading range. Of course this system has losing trade and losing runs, but with proper money management and good discipline I’m sure this system will keep you out of bad trades and give you a great chance to make profits in the Fx market. One of the nice things about this system is it will quickly tell you if prices are in an up or down swing phase and stop you from guessing! It will also allow you to decide to be a bull or a bear and trade in the direction of that trend. There are 3 charts involved in this system: a 4hr chart, a 1hr chart and a 5min chart. There is 1 indicator, a 60 period simple moving average (60 sma) plotted on each chart. There you go, its that simple.

How it works:

Step 1 - First Duck

The first thing we need to do is look at our largest time-frame (4hr chart) and see if current prices are above or below the 60 sma. From this chart we can see that current price is below the 60 sma. This tells us that we maybe looking to sell.

Step 2 - Second Duck

The second thing we need to do is drop down to our 1hr chart. We need to see the current price below the 60 sma on this chart also, this gives us confirmation. Important: If the current price was to be above the 60 sma on this chart we could not move on to step 3.

Step 3 - Third Duck

From step 1 and 2, current prices need to be below their 60 sma’s on each chart. We are now on the 5 min chart and we are looking to sell when price crosses below the 60 sma. For extra confirmation we should let prices break the last low on the 5 min chart. This would mean that prices will be below their 60 sma on all 3 time-frames, therefore all 3 Ducks are lined up in the same direction.

Stop-Losses: This is where you can make this system your own. If you are a short term trader you may want to put your stop-loss above the highs on the 5 min or the 1 hr chart. If you are more of a positional trader you may wish to put your stop-loss above a high on the 4 hr chart. You could also use a fixed stop-loss, maybe 25-30 pips or more from entry. It all depends what type of a trader you are, so you decide! If you are a longer term trader or investor, this system can help you get a good entry point into the market. Another “trick” that may help you preserve capital, If you do sell and prices get back above the 5 min 60 sma by 10 pips (not a good sign) you may want to cut your losses short before your stop-loss. But if you are a longer term trader this may not be a big deal for you.

Targets: Same again, depends what type of a trader you are but target can be support or resistance levels.

Summary: The above example was carried out when the gbp/usd was trading lower so obviously we where selling - the system works just as well for buying opportunities, just look for prices to be above the 60 sma on all 3 time-frames, starting with step 1 again. I like this system a lot as it does not try to out-guess the markets movements and pick tops and bottoms. The system will quickly tell you to be a buyer or a seller. Its a good honest system that tries to follow prices. This system works better on currency pairs such as the Eur/Usd and Gbp/Usd, but there is nothing stopping you from plotting this system on any pair, but as we know some pairs act differently to others. The best time I found for trading this system is the European and US sessions. I lke to use this system as a guide in addition to my own market knowledge. Take care to watch what is going on around you - economic new releases, holidays etc.

Good Luck with the 3 Duck’s Trading System.

Captain Currency.

Five Chart Patterns You Need to Know

2009-03-11T21:20:00.000+05:30

Five Chart Patterns You Need to Know

In the report you'll learn how to:

Recognize profitable stock patterns
Minimize your investment risk in three simple steps
Lock in high returns by choosing the right selling price
Maximize your profits even when the market is down

Profitable Pattern Number One
The Symmetrical Triangle: A Reliable Workhorse

You’ll recognize the symmetrical triangle pattern when you see a stock’s price vacillating up and down and converging towards a single point. Its back and forth oscillations will become smaller and smaller until the stock reaches a critical price, breaks out of the pattern, and moves drastically up or down.

The symmetrical triangle pattern is formed when investors are unsure of a stock’s value. Once the pattern is broken, investors jump on the bandwagon, shooting the stock price north or south.

Symmetrical Triangle Pattern
To form your symmetrical triangle pattern, draw two converging trendlines that bound the high and low prices. Your trendlines should form (you guessed it) a symmetrical triangle, lying on its side.

How to Profit from Symmetrical Triangles

Symmetrical triangles are very reliable. You can profit from upwards or downwards breakouts. You’ll learn more about how to earn from downtrends when we talk about maximizing profits.

If you see a symmetrical triangle forming, watch it closely. The sooner you catch the breakout, the more money you stand to make.

Watch For:

• Sideways movement, a period of rest, before the breakout.
• Price of the asset traveling between two converging trendlines.
• Breakout ¾ of the way to the apex.

Set Your Target Price:

As with all patterns, knowing when to get out is as important as knowing when to get in. Your target price is the safest time to sell, even if it looks like the trend may be continuing.

For symmetrical triangles, sell your stock at a target price of:

• Entry price plus the pattern’s height for an upward breakout.
• Entry price minus the pattern’s height for a downward breakout.

Profitable Pattern Number Two
Ascending and Descending Triangles: The Traditional Bull and Bear

When you notice a stock has a series of increasing troughs and the price is unable to break through a price barrier, chances are you are witnessing the birth of an ascending triangle pattern.

Ascending Triangle Pattern
Confirm your ascending triangle pattern by drawing a horizontal line tracing the upper price barrier and a diagonal line tracing the series of ascending troughs.

The descending triangle is the bearish counterpart to the ascending triangle.

Descending Triangle Pattern
Confirm your descending triangle by drawing a horizontal line tracing the lower price barrier and a diagonal line tracing the series of descending troughs.

The ascending and descending patterns indicate a stock is increasing or decreasing in demand. The stock meets a level of support or resistance (the horizontal trendline) several times before breaking out and continuing in the direction of the developing up or down pattern.

How to Profit from Ascending and Descending Triangles

Ascending and descending triangles are short-term investor favorites, because the trends allow short-term traders to earn from the same sharp price increase that long-term investors have been waiting for. Rather than holding on to a stock for months or years before you finally see a big payday, you can buy and hold for only a period of days and reap in the same monster returns as the long-time stock owners.

As with many of our favorite patterns, when you learn to identify ascending and descending triangles, you can profit from upwards or downwards breakouts. That way, you’ll earn a healthy profit regardless of where the market is going.

Watch For:

• An ascending or descending pattern forming over three to four weeks.

Set Your Target Price:

For ascending and descending triangles, sell your stock at a target price of:

• Entry price plus the pattern’s height for an upward breakout.
• Entry price minus the pattern’s height for a downward breakout.

Profitable Pattern Number Three
Head and Shoulders: A ChartAdvisor Staple

The head and shoulders pattern is a prevailing pattern among short sellers, investors who profit from downtrends. After three peaks, the stock plummets, offering a textbook, high-return opportunity to traders who catch the trend early.

Head and Shoulders Pattern
Head and shoulder patterns are characterized by a large peak bordered on either side by two smaller peaks. Draw one trendline, called the neckline, connecting the bottom of the two troughs.

The first trough is a signal that buying demand is starting to weaken. Investors who believe the stock is undervalued respond with a buying frenzy, followed by a flood of selling when traders fear the stock has run too high. This decline is followed by another buying streak which fizzles out early. Finally, the stock declines to its true worth below the original price.

How to Profit from the Head and Shoulders Pattern

• Short sell as soon as the price moves below the neckline after the descent from the right shoulder.

Set Your Target Price:

For the head and shoulders pattern, buy shares at a target price of:

• Entry price minus the pattern’s height (distance from the top of the head to the neckline).

Profitable Patterns Number Four and Five
Triple and Double Bottoms and Tops: Reversals upon reversals

When you see a W or M pattern forming, you may have just discovered a money-making double bottom or double top pattern. These patterns are common reversal patterns used to suggest the current stock trend may be likely to shift.

But don’t panic if your double bottom or double top patterns do not develop as you had originally thought. You haven’t lost your chance for cash. If your W or M pattern reverses for a fourth time, you could now be working with the profitable triple bottom or triple top.

Double Bottom Pattern

Double Bottom Pattern
A small peak is surrounded by two equal troughs.

Purchase When:
• The price exceeds the middle-peak price.

Watch For:

• A price increase of 10% to 20% from the first trough to the middle peak.
• Two equal lows, not to differ by more than 3% or 4%.

Set Your Target Price:

For the double bottom pattern, sell your stock at a target price of:

• Entry price plus the pattern’s height (distance from the peak to the bottom of the lowest trough).

Double Top Pattern

Double Top Pattern
A small trough is surrounded by two equal peaks.

Short Sell When:
• The price drops below the middle-trough price.

Watch For:

• A price decrease of 10% to 20% from the first peak to the middle trough.
• Two equal highs, not to differ by more than 3% or 4%.

Set Your Target Price:

For the double top pattern, buy shares at a target price of:

• Entry price minus the pattern’s height (distance from the trough to the top of the highest peak).

Triple Bottom Pattern

Triple Bottom Pattern
Three equal troughs amid a series of peaks.

Purchase When:

• The price exceeds the resistance established by the prior peaks.

Watch For:

• A series of three identical troughs at the end of a prolonged downtrend.

Set Your Target Price:

For triple bottom patterns, sell your stock at a target price of:

• Entry price plus the pattern’s height (distance from the resistance to the bottom of the lowest trough).

Triple Top Pattern

Triple Top Pattern
Three equal peaks amid a series of troughs.

Purchase When:

• The price falls below the support that formed from the prior troughs.

Watch For:

• A series of three peaks at relatively the same level.

Set Your Target Price:

For triple top patterns, buy shares at a target price of:

• Entry price minus the pattern’s height (distance from the support to the top of the highest peak).

Now You Know…

The five most profitable stock patterns:

• symmetrical triangle
• ascending and descending triangles
• head and shoulders
• double top and double bottom
• triple top and triple bottom

Donchian's Trading Method...

2009-03-11T21:14:00.001+05:30

How simple! Richard Donchian used the 4 week rule. The Turtles used the same strategy in the eighties. Donchian's strategy was to "buy when a stock made a 4 week new high" and his exit rule was " sell when it makes a two week low" How simple things can be! But the very simplicity of this concept makes it difficult to understand for today's fast paced internet freak day traders who have no vision to look beyond a 24 hour life span, forget about four weeks! Pity! and in a way it is good because there would be less competition! Ignorance is bliss.

Article adapted from and written by The Indian Market Monitor

25 50 EMA System

2009-03-10T21:10:00.000+05:30

25 50 EMA System - Buy signal

Indicators:

EMA (25)

EMA (50)

RSI (14)

Stochastic (5,3,3)

ATR (100)

LONG:

A candle opens above the 50 MA & RSI is above 50

SHORT:

A candle opens below the 50 MA & RSI is below 50

MACD Crossover System

2009-03-10T21:06:00.000+05:30

MACD Crossover System

Indicators:

MACD (12, 26, 9)

LONG:

Signal line cross histogram below zero line

SHORT:

Signal line cross histogram above zero line

Candle & Chart Pattern Easy Reference Tool

2009-03-10T19:47:00.000+05:30

Candle & Chart Pattern Easy Reference Tool

Elliott Wave on the Indian Stock Exchange

2009-02-15T21:51:00.001+05:30

A reader asked me to look at India’s Stock Exchange (”Nifty”) and I’m seeing an interesting potential Elliott Wave Count that may be setting up clearer than the S&P 500 Index. Let’s see the Weekly and Daily Structure.

India’s Stock Exchange (S&P CNX “Nifty” Index - $CNXN) Weekly:

I’m not an expert at India’s Stock Exchange, but let’s see what the charts might be hinting to us.

Clearly, we’re in a downtrend and the moving averages have just crossed into the most bearish orientation possible. Price is beneath all of them and we’re coming off a New Momentum Low that formed in October. Price retraced back to the falling 20 week EMA (fell just shy of it) and appears to be inflecting downward to make possible new lows. The entire bearish analysis will be invalidated if we get a move up here to close above 3,200, which would invalidate the Elliott Wave Count and also break above the falling 20 week EMA.

Speaking of Elliott Wave, the easiest count I have us here is in the final 5th Wave of the massive 3rd Wave Down. Officially, I have us ready to begin the third wave of the 5th wave. I’ve drawn a possible pathway price might take (which again will be invalidated with a close above 3,200).

Look closely at the Wave Count to see if you have a different interpretation you would like to share. I have the 3rd Wave Sub-dividing into its own large-scale 5 wave pattern, and if that is correct, then we’re missing the Final Fifth Wave to complete the pattern. Afterwards, we would expect a large-scale “ABC” circled 4th Wave (major) to take us back to 3,500 or perhaps 4,000.

Let’s drop to the Daily Chart to see this massive potential 3rd wave in action.

India’s Stock Exchange (S&P CNX “Nifty” Index - $CNXN) Daily:

If you don’t understand Elliott Wave, side-step the numbering to look at the orientation of price to the key moving averages and what happened in the past when price formed Divergences (or other momentum readings).

I have the Corrective 4th Wave completing in January as price formed a “Bull Trap” (at the same time the S&P 500 did so) before price began its descent into February. Price has actually shown relative strength to the S&P 500. I have us forming a triangle on the momentum oscillator and - in terms of Elliott - completing the c Wave of 2 which means - if this is correct - then we’ll soon be breaking down from these levels.

One force counter-acting that currently is the EMA structure - which is actually in the most bearish orientation possible, though price is currently supporting above these averages. Watch this closely for additional clues.

A second way to interpret the Elliott Count would be to place the entire structure (after Wave 3) into an ABCDE Triangle, with the November high = A; Nov Low = B; January high = C; January Low = D; and current price = E. If this is the dominant count, then it would imply a downside break is imminent to plunge us into the first wave of the final 5-wave structure down. This also would be invalidated with a close above 3,200.

If you have further interest, watch this chart closely to see if we break to the upside… but if we break down from here, we’ll know the Elliott Count and resolution is the most likely outcome of the current structure, which would mean new lows will be realized likely in March. Same goes for the US S&P 500 as well.

-Corey Rosenbloom

10 rules of successful trading

2009-01-24T14:56:00.001+05:30

Unlike investors who need markets to move up in order to profit from their investment, traders don't depend only on bull markets. They can profit even in down trends.

This is a crucial advantage traders enjoy over investors -- the ability to make money whether the market is moving up or down. This fact should not, however, lead you to believe that trading is easy; it requires both a skill-set and rigorous discipline.

Many people take to trading in the mistaken belief that it is the simplest way of making money. Far from it, I believe it is the easiest way of losing money. There is an old Wall Street adage, that 'the easiest way of making a small fortune in the markets is having a large fortune'.

This game is by no means for the faint hearted. And, this battle is not won or lost during trading hours but before the markets open but through a disciplined approach to trading.

1. Always have a trading plan

Winning traders diligently maintain charts and keep aside some hours for market analysis. Every evening a winning trader updates his notebook and writes his strategy for the next day. Winning traders have a sense of the market's main trend. They identify the strongest sectors of the market and then the strongest stocks in those sectors. They know the level they are going to enter at and approximate targets for the anticipated move.

For example, I am willing to hold till the market is acting right. Once the market is unable to hold certain levels and breaks crucial supports, I book profits. Again, this depends on the type of market I am dealing with.

In a strong up trend, I want the market to throw me out of a profitable trade.

In a mild up trend, I am a little more cautious and try to book profits at the first sign of weakness.

In a choppy market, not only do I trade the lightest, I book profits while the market is still moving in my direction.

Good technical traders do not worry or debate about the news flow; they go by what the market is doing.

2. Avoid overtrading

Overtrading is the single biggest malaise of most traders. A disciplined trader is always ready to trade light when the market turns choppy and even not trade if there are no trades on the horizon.

For example, I trade full steam only when I see a trending market and reduce my trading stakes when I am not confident of the expected move. I reduce my trade even more if the market is stuck in a choppy mode with very small swings.

A disciplined trader knows when to build positions and step on the gas and when to trade light and he can only make this assessment after he is clear about his analysis of the market and has a trading plan at the beginning of every trading day.

3. Don't get unnerved by losses

A winning trader is always cautious; he knows each trade is just another trade, so he always uses money management techniques. He never over leverages and always has set-ups and rules which he follows religiously.

He takes losses in his stride and tries to understand why the market moved against him. Often you get important trading lessons from your losses.

4. Try to capture the large market moves

Novice traders often book profits too quickly because they want to enjoy the winning feeling. Sometimes even on the media one hears things like, "You never lose your shirt booking profits." I believe novice traders actually lose their account equity quickly because they do not book their losses quickly enough.

Knowledgeable traders on the other hand, will also lose their trading equity -- though slowly -- if they are satisfied in booking small profits all the time. By doing that the only person who can grow rich is your broker. And this does happen because, inevitably, you will have periods of drawdowns when you are not in sync with the market. You can never cover a 15-20% drawdown if you keep booking small profits. The best you will do is be at breakeven at the end of the day, which is not the goal of successful trading.

A trading account that is not growing is not sustainable. Thus when you believe you have entered into a large move, you need to ride it out till the market stops acting right. Traders with a lot of knowledge of technical analysis, but little experience, often get into the quagmire of following very small targets, believing the market to be overbought at every small rise -- and uniformly so in all markets.

Such traders are unable to make money because they are too smart for their own good. They forget to see the phase of the market. Not only do these traders book profits early, sometimes they even take short positions believing that a correction is "due". Markets do not generally correct when corrections are "due".

The best policy is to use a trailing stop loss and let the market run when it wants to run. The disciplined trader understands this and keeps stop losses wide enough so that he is balanced between staying in the move as well as protecting his equity. Capturing a few large moves every year is what really makes worthwhile trading profits.

5. Always keeps learning

You cannot learn trading in a day or even a few weeks, sometimes not even in months. Successful traders keep reading all the new research on technical analysis they can get their hands on. They also read a number of books every month about techniques, about trading psychology and about other successful traders and how they manage their accounts.

I often like to think about traders as jihadis; unless there is a fire in the belly, unless there is a strong will and commitment to win, it is impossible to win consistently in the market.

6. Always be alert to opportunities of making some money with less risky strategies as well

Futures trading, for example, is a very risky business. The best of chartists and the best of traders sometimes fail. Sure, it gives the highest returns but these may not be consistent -- and the drawdowns can be large.

Traders should always remember that no matter how good your analysis is, sometimes the market is not willing to oblige. In such times the 4-5% that can be earned in covered calls or futures and cash arbitrage comes in very handy. It improves the long term sustainability of a trader and keeps your profit register ringing.

Traders must learn to live with lower risk and lower return at certain times in the market, in order to protect and enlarge their capital.

Disciplined traders have reasonable risk and return expectations and are open to using less risky and less exciting strategies of making money, which helps them tide over rough periods in the markets.

7. Treat trading as a business and keep a positive attitude

Trading can be an expensive adventure sport. It should be treated as a business and should be very profit oriented. Successful traders review their performance at regular intervals and try to identify causes of both superior and inferior performance.

The focus should be on consistent profits rather than erratic large profits and losses. Also, trading performance should not be made a judgement on an individual; rather, it should be considered a consequence of right or wrong actions.

Disciplined traders are able to identify when they are out of sync with the market and need to reduce position size, or keep away altogether. Successful trading is like dancing in rhythm with the market.

Unsuccessful traders often cut down on all other expenses but refuse to see what might be wrong with their trading methods. Denial is a costly attitude in trading. If you see that a particular trade is not working the way you had expected, reduce or eliminate your positions and see what is going on.

Most disciplined and successful traders are very humble. Humility is a virtue that traders should learn on their own, else the market makes sure that they do. Ego and an "I can do no wrong" attitude in good times can lead to severe drawdowns in the long term.

Also, bad days in trading should be accepted as cheerfully as the good ones. So disciplined traders maintain composure whether they have made a profit or not on a particular day and avoid mood swings.

A good way to do this is to also participate in activities other than trading and let the mind rest so that it is fresh for the next trading day.

8. Never blame the market for your reverses

Disciplined traders do not blame the market, the government, the companies or anyone else, conveniently excluding themselves, for their losses. The market gives ample opportunities to traders to make money. It is only the trader's fault if he fails to recognise them.

Also, the market has various phases. It is overbought sometimes and oversold at other times. It is trending some of the time and choppy at others. It is for a trader to take maximum advantage of favourable market conditions and keep away from unfavourable ones.

With the help of derivatives, it is now possible to make some money in all kinds of markets. So the trader needs to look for opportunities all the time.

To my mind, the important keys to making long term money in trading are:

Keeping losses small. Remember all losses start small.

Ride as many big moves as possible.
Avoid overtrading.
Never try to impose your will on the market.
It is impossible to practice all of the above perfectly. However, if you can practice all of the above with some degree of success, improvement in trading performance can be dramatic.
9. Keep a cushion

If new traders are lucky to come into a market during a roaring bull phase, they sometimes think that the market is the best place to put all one's money. But successful and seasoned traders know that if the market starts acting differently in the future, which it surely will, profits will stop pouring in and there might even be periods of losses.

So do not commit more than a certain amount to the market at any given point of time. Take profits from your broker whenever you have them in your trading account and stow them away in a separate account.

I say this because the market is like a deep and big well. No matter how much money you put in it, it can all vanish. So by having an account where you accumulate profits during good times, it helps you when markets turn unfavourable.

This also makes drawdowns less stressful as you have the cushion of previously earned profits. Trading is about walking a tightrope most times. Make sure you have enough cushion if you fall.

10. Understand that there is no holy grail in the market

There is no magical key to the Indian or any other stock market. If there were, investment banks that spend billions of dollars on research would snap it up. Investing software and trading books by themselves can't make you enormously wealthy.

They can only give you tools and skills that you can learn to apply. And, finally, there is no free lunch; every trading penny has to be earned. I would recommend that each trader identify his own style, his own patterns, his own horizon and the set-ups that he is most comfortable with and practice them to perfection.

You need only to be able to trade very few patterns to make consistent profits in the market.

No gizmos can make a difference to your trading. There are no signals that are always 100% correct, so stop looking for them.

Focus, instead, on percentage trades, trying to catch large moves and keeping your methodology simple. What needs constant improving are discipline and your trading psychology.

At end of the day, money is not made by how complicated-looking your analysis is but whether it gets you in the right trade at the right time. Over-analysis can, in fact, lead to paralysis and that is death for a trader. If you can't pull the trigger at the right time, then all your analysis and knowledge is a waste.

[Excerpt from How to Make Money Trading Derivatives by Ashwani Gujral. Published by Vision Books.]

Ten Greatest Investment Books...Ever!

2009-01-22T23:18:00.000+05:30

I understand this is a bold claim. Of course, everyone has their different opinion about what are the best trading books. In my opinion, the books discussed below are the greatest investment texts. These are the ones that I frequently turn to when I want an answer or need motivation. I hope they may be beneficial to you as well. This list is not necessarily ranked in order, although I do have my two favorites ranked as 1 and 2.

10. Trading for Dummies, by By Michael Griffis and Lita Epstein. The dark horse on the list. This was one of the first investment books I read. I still occasionally peruse it just to get a different perspective. This book gives a plain language description of trading, from the basics of how to place an order to candlesticks, to reading balance sheets. The good thing is that both technical and fundamental analysis are covered. It also goes toe-to-toe with the more scholarly trading books that read more like classroom texts. Also, unlike the more scholarly tomes, this is reasonably priced.

9. Japanese Candlestick Charting Techniques, by Steve Nison. Nison is said to have introduced candlestick charting to America. I remember the first time I looked at candlesticks before I was even into the market-extremely intimidating! Even after I became more involved in trading, I still was reluctant to learn to interpret ‘sticks. Slowly, I became more comfortable to the point that reading them is now second nature. Using candlesticks enables one to notice price fluctuation and patterns much easier than standard bar or line charts.

8. Secret for Profiting In Bull And Bear Markets, by Stan Weinstein. Mr. Weinstein’s way of trading is very similar to that of Bill O’Neil (see below), but with less of an emphasis on fundamentals. The sections on market direction and short selling are excellent.

7. The Dow Theory Today, by Richard Russell. Although published in 1961, this book is still relevant today. Some consider Richard Russell the last true practitioner of pure Dow Theory. I particularly like Mr. Russell’s description of investor sentiment near tops and bottoms. The book is loaded with fantastic quotes. I even used one recently in a prior post. The book is small and is reasonably priced.

6. The Complete Guide of Market Breadth Indicators, by Gregory Morris. An extensive overview of the numerous types of indicators available for deciphering the market. My personal favorite is the section on the McClellan Oscillator.

5. Technical Analysis of the Financial Markets, by John Murphy. Mr. Murphy runs stockcharts.com. While this book is more like a reference guide, I routinely find myself reviewing different parts. There is a fantastic introduction section on Elliot Wave Theory and candlesticks. Aside from the book, the website is fantastic; the charts are great and the “chart school” section is the best on the web.

4. Encyclopedia of Chart Patterns, by Thomas Bulkowski. Another reference book, but well worth it. It not only provides detailed description of patterns and the relevant characteristics, but their actual performance in both bull and bear markets. If you are a practitioner of technical analysis, not having this book is like a ship captain not having a compass.

3. Market Wizards: Interviews with Top Traders, by Jack Schwager. One would think nothing can be taught by reading trader war stories- at least that is how I felt at first. However, after reading the book, I realized a lot of the issues I dealt with were also encountered by traders, such as risk management, over-trading, etc. A lot of the great are interviewed: Jim Rogers, Ed Seykota, Bill O’Neil, etc. Reasonably priced.

2. How I Made $2 Million In The Stock Market, by Nicolas Darvas. Details the journey of professional dancer-turned-trader, Nicolas Darvas, and how he amassed $2 million in a short time. Mind you, this was not easy money. It took Darvas seven years to figure out the market before he hit it big. The reason this book resonates with me, and many other traders, is that Darvas goes through the same stages most investors encounter: trying to make money trading penny stocks; listening to analysts and tips, using only fundamental analysis to make decisions, etc. Eventually he settles on a system in which he buys stocks achieving their all-time high. While maybe not the best book as far as technical information (although it provides plenty of that), it is my all-time favorite trading book. If you check other recommended reading lists, this book is regularly cited. I actually scoffed at reading it at first, thinking “what the hell can I learn from this story?” I decided to give it a chance after I saw how often it was recommended. The recommenders are right. Reasonably priced.

1. How To Make Money In Stocks: A Winning System In Good Times Or Bad, by Bill O’Neil. Do not let the infomercial-like title deter you. While I tried to get away from ranking these books, O’Neil’s book is the best. In this book, O’Neil, the founder of Investor’s Business Daily, provides the perfect blend of fundamental and technical analysis along with motivation to make you a successful investor. With the exception of this book, I have yet to see one that provides you with a solid set of rules. Most books, even the good ones, will discuss what you should and should not do, but never provide you with a firm plan. O’Neil provides the investor with a system for profiting. Although the book is used to peddle the newspaper’s services, considering the information provided, this shortcoming is easy to look past. Reasonably priced. Interestingly, the 4th Edition is due out in April 2009.

10 Stocks for 2009

2009-01-04T13:00:00.001+05:30

Apollo Hospitals

Bharti Airtel

HDFC

Hero Honda

ITC

IVRCL Infrastructure

Reliance Industries

SBI

Sun Pharma

Tata Power

( via Business Standard)

HAPPY NEW YEAR.....

2008-12-31T15:45:00.001+05:30

PAISAPOWER WISHING YOU THE VERY BEST IN
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　　╔═╝║║║║║║║╚╝║
　　║╔═╣║║║║║╠═╗║
　　║╚═╣╚╝║╚╝╠═╝║
　　╚══╩══╩══╩══╝
¤ø„¸¨°º¤ø„¸ ¸„ø¤º°¨¸„ø¤º°¨
¨°º¤ø„¸ HaPpY ¸„ø¤º°¨
¸„ø¤º°¨ NeW yEaR``°º¤ø„¸
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Are we lesser by the day....?

2008-12-30T15:20:00.001+05:30

21st Century.... We are becoming lesser by the day

Our communication - Wireless
Our telephone - Cordless
Our cooking - Fireless
Our youth - Jobless
Our food - Fatless
Our labour - Effortless
Our conduct - Worthless
Our relation - Loveless
Our attitude - Careless
Our feelings - Heartless
Our politics - Shameless
Our education - Valueless
Our follies - Countless
Our arguments - Baseless
Our job - Thankless

Merry Christmas

2008-12-24T17:57:00.003+05:30

அன்பென்ற மழையிலே அகிலங்கள் நனையவே...
அதிரூபன் தோன்றினானே...
வைக்கோலின் மேல் ஒரு வைரமாய் வைரமாய்...
வந்தவன் தோன்றினானே...
வின்மீண்கள் கண் பார்க்க சூரியன் தோன்றுமோ...
புகழ்மைந்தன் தோன்றினானே...
கண்ணீரின் காயத்தை செந்நீரில் ஆற்றவே...
சிசுபாலன் தோன்றினானே...

இனிய கிருஸ்த்துமஸ் திருநாள் வாழ்த்துகள்....

-சரவணக்குமார்.

Option Trading Strategies Tutorial

2008-11-26T19:00:00.000+05:30

Option Trading Strategies Tutorial

How is a volatility extreme identified?
Which trades are used when volatility is low?
Which trades are used when volatility is high?
How is volume used to identify trades?
What is a Option Straddle?
What is a Option Strangle?
What is a Option Backspread?
What is a Option Ratio Spread?
How do you calculate probability of profit?

STOP LOSS - A PUZZLE OR....

2008-11-14T19:26:00.003+05:30

There is a big difference between investor and trader.Investor buy and sleep,he never bother for stop.whereas trader can not survive without stop loss.

Stop lose is like bullet-proof for trader.

In simple words 'stop-loss is a squaring-off order for a trade that is going in wrong direction'.so that the loss on the wrong trade could be minimized or limited.

Stop mental or physical.......I will not go in detail here and directly comes on point......the trade should be not placed without stop. No mental stop please.......because there are only few people who are capable to control themselves else 90% of peoples who use mental stop normally hesitate to cut the position........
but before placing the trade or stop It is better to understand where the stop should be used and where hedge......

Normally.....in an established market stop works well......if stop hit .....reimburse the trade or forget.....and look for other target......but in volatile market stop become suicidal point......it hurts....so better to hedge the position.

My personal opinion......use the stop with stocks......and hedge the position while trading Index.

Now.....what should be the level of stop......?

Well......few peoples use a certain percentage......some peoples use a fix stop like 5 rs 10 rs......few other use support based stop......

Operators.....normally try every trick....and drive in crazy way....some time stop hit the bottom/top go little lower/higher and return.......false break-outs/break-downs.... these are the basic problems......there is no solution.....so in my view a Volatility based stop is much better than other types......and that can be calculated on hourly or 30 minuets time frame......formula is.......

Range calculation ....high-low/previous day's close*100 = VS%

now divide the VS% by a suitable number (2,4,5......)

and now .....hourly support or stock price -VS%

this formula is for long........for short we add the % VS to hourly high or nearest resistance.

here is a small example.....BHEL (Today's first hour)high 1760 low 1743 , previous close 1760.25.....so use the stop at 1742 or calculate......

Range = High- Low , 1760-1743 = 17
divided by previous day's close 1760.25 = .96%

Now this .96% can either be used as stop or divided it by a suitable number for example .......divide it by 2= .48%or say .5%

Now if the trader is buying 1748 levels.....stop should be at 1748-9 (1748*.5%)=1739. So if the stop hit at 1739.......forget or go short.

VIA - Tu Daal Dal Main Paat Pat

TOP 40 SCRIPES...

2008-11-08T23:17:00.000+05:30

Compact-15 Diwali pick of 2008-A.K.Prabhakar

2008-10-27T21:04:00.001+05:30

Compact-15 Diwali pick of 2008-A.K.Prabhakar

Stocks below Book Value

2008-10-18T23:31:00.001+05:30

Stocks below Book Value

India Plans to Increase Liquidity, Driving Stock, Rupee Gains

2008-10-13T17:06:00.000+05:30

Finance Minister Palaniappan Chidambaram said India plans to increase the amount of cash in the financial system, lifting the rupee from a record low and shares after the biggest drop in 18 years last week.

``The root cause of the present uncertainty is liquidity and not any dramatic change in the fundamentals of the economy,'' Chidambaram said in New Delhi today. ``We are working on more measures that will infuse liquidity and increase the confidence of depositors and investors.''

India's central bank may further cut the amount of cash banks need to set aside as reserves as the tightest credit crunch in 19 months threatens to stall economic growth. Indian stocks led by ICICI Bank Ltd. mirrored gains across Asia today as Australia guaranteed bank deposits while European leaders agreed to support lenders in an effort to restore investor confidence.

``There has to be a sustained effort to calm markets because these are very unusual times,'' said Sujan Hajra, chief economist at Anand Rathi Securities Pvt. in Mumbai. ``A deeper cut in the cash reserve ratio is most likely in India, where the problem is one of liquidity.''

The government, the Reserve Bank of India and the Securities & Exchange Board of India are working on more steps, Chidambaram said, without elaborating. ``We hope to be able to announce them shortly,'' the finance minister said in a televised briefing before the stock market opened.

Markets Rally

India's benchmark Bombay Stock Exchange Sensitive Index, or Sensex, surged 6.3 percent to 11,186.35 after a 16 percent plunge last week. ICICI Bank climbed by a record, reversing its biggest ever drop on Oct. 10, after Chief Executive Officer K.V. Kamath said the nation's second-biggest lender had sufficient funds.

ICICI Bank is being targeted by short sellers who have spread rumors that the bank may struggle to refund depositors, Kamath told NDTV Profit news channel today. India should consider a ban on short sales, he said. Short sellers borrow stock and sell it, hoping to buy it back at a lower price.

The rebound in the markets came after the Reserve Bank of India reduced the cash reserve ratio, or the amount of money lenders need to keep aside as reserves, to 7.5 percent from 9 percent starting Oct. 11. The cut was the sharpest since 2001.

The rupee rose 0.7 percent to 48.10 per dollar, snapping a five-day losing streak, while bond yields on the key 10-year bonds declined 5 basis points to 7.74 percent. Overnight money markets rates fell to 9.85 percent today from 16 percent on Oct. 10, the highest since March 2007. A basis point is 0.01 percentage point.

`Nothing to Fear'

Indian banks are ready to provide credit, are safe and depositors have nothing to fear, Chidambaram said, adding he may make another statement today if needed. A panel set up by the finance ministry panel on liquidity will meet at 3:30 p.m.

Still, Indian real-estate developers will continue to face a shortage of funds even after the central bank cut the amount of cash banks need to hold to ease credit, Macquarie Research said in a note to clients today.

``The capital crunch has hit the sector very hard,'' Macquarie analysts Unmesh Sharma and Bharat Rathi said. ``We believe the tightness will continue for a few more months, given the difficulty in raising capital through bank debt, equity markets and (more recently) private equity.''

The tight money market conditions have emerged at a time when India's industrial output growth has slumped to the weakest pace in at least 14 years. Output at factories, utilities and mines rose 1.3 percent in August from a year earlier after a revised 7.4 percent gain in July, as rising borrowing costs since 2004 to contain inflation sapped consumer demand.

The central bank has increased its key repurchase rate by 3 percentage points to 9 percent since 2004 and the cash reserve ratio by 4 percentage points since December 2006, before last week's cuts in the reserve ratio.

Slowing Growth

The $1.2 trillion economy may slow to 7.9 percent in 2008 and slide further to 6.9 percent in 2009, the International Monetary Fund said this month, as it described the world economy as being ``on the cusp'' of a recession. The IMF estimates India's economy grew 9.3 percent in 2007.

``There is a need to switch the monetary policy stance towards growth because inflation is ebbing,'' said Suresh D. Tendulkar, chairman of the panel of economic advisers to Prime Minister Manmohan Singh. Tendulkar also called for easing restrictions on local companies raising funds overseas.

Inflation in the nation may ease from the current 15-week low with prices of crude oil, wheat and other commodities tumbling as the world economy heads toward a recession.

India's key wholesale price inflation rate fell to 11.80 percent in the week to Sept. 27, the government said Oct. 10, slower than economists expected. Chidambaram said the drop in prices of metal and oil, currently near a 13 month low of $77.7 a barrel, will have a ``beneficial'' effect on inflation.

`Swift' Steps to Boost Liquidity - Subbarao

2008-10-12T22:52:00.001+05:30

Indian central bank Governor Duvvuri Subbarao said he's prepared to take ``effective'' steps to maintain liquidity in the nation's credit markets and repeated the bank's policy of smoothing swings in the currency.

We ``stand ready to take appropriate, effective and swift action'' to provide liquidity, he told reporters yesterday in Washington, where he was attending a meeting of Group of 20 finance ministers and central bankers. He said India's economy is ``strong'' and its banks are ``sound'' and ``well capitalized.''

India yesterday made the steepest cut since 2001 in the amount of cash lenders must set aside as reserves to kick-start the $1.2 trillion economy, as the rupee plunged to an all-time low and overseas investors dumped emerging-market stocks. The drop in the cash-reserve ratio followed a reduction on Oct. 6.

Subbarao, 59, declined to comment on interest-rate policy, saying that ``all variables are up for review'' at the Reserve Bank of India's Oct. 24 policy meeting. While the latest figures on inflation are ``quite comforting,'' it is ``still too early to let the vigil slip'' on prices, he said.

India's inflation has slowed to a 15-week low of 11.8 percent, according to the latest government figures, though it is still more than double the central bank's target.

Steps taken so far to improve liquidity in the Indian financial system amount to as much as $22 billion, Subbarao said.

The governor also said that in the medium term, India's rupee ``should be determined by market fundamentals.'' The RBI's policy, to ``manage exchange-rate volatility'' rather than take a view on its level, ``should continue to serve us well,'' he said.

`Knock-On Effect'

Indian markets are experiencing a ``knock-on effect'' from the global financial crisis, because the country's banks have no direct exposure to U.S. sub-prime mortgages, Subbarao said. The RBI's priorities include ``managing inflation while maintaining the growth momentum,'' and financial stability has become another objective over the last three months, he said.

Subbarao this week rushed to free up cash after money-market rates surged to an 18-month high and financial stocks slumped. ICICI Bank Ltd., the Indian lender with the biggest losses on overseas investments, dropped by a record on Oct. 10, forcing the bank to reiterate it had sufficient funds.

Some economists predict the RBI may follow central banks worldwide and cut interest rates as inflation pressures ease and the worsening global crisis begins to weaken economic growth.

``India has been cautious in its reaction until now,'' Swaminathan Aiyar, a Cato Institute research fellow with a focus on Asia, said in Washington. ``Subbarao clearly believes in balance'' between the policy objectives of growth and inflation. ``A rate cut is coming.''

Rescue Plans

Subbarao, who took over as RBI governor a month ago, said the problems and perspectives of countries directly affected by the global financial crisis are ``quite different'' from those of nations like India that are affected indirectly.

Relief and rescue plans announced by advanced countries so far don't include components in which peripheral countries such as India could participate, he said.

Still, India would ``hope to be included and involved in the design and implementation'' of such an effort, should there be a need, he said.

Why Lehman Bros went bust; what it means for you

2008-09-16T23:20:00.000+05:30

Lehman Brothers is no more. Merrill Lynch has gone down the Bank of America maw. AIG too could go belly up. With a doubt, these developments in America are the most shocking events to have hit global financial markets. So where did it all begin? And what does it mean for the Indian stock markets? Find out. . .

What is (or was) Lehman Brothers?

America's fourth-largest investment bank Lehman Brothers Holdings Inc has filed the biggest bankruptcy petition known to mankind.

The 158-year-old firm was founded by brothers Henry, Emanuel and Mayer Lehman, Jewish immigrants to the US from Germany, in 1850. Henry set up a general store in Alabama in 1844 and was later joined by his brothers. In 1850 they set up the merchant bank in New York after having made money in railway bonds. So what went wrong?

Lehman Bros, which till June 2008 had not reported a quarterly loss even once, had earlier survived many an economic crises, like railroad bankruptcies of the 1800s, the Great Depression in the 1930s, and the collapse of Long-Term Capital Management in the 1990s.

Thus the collapse of the giant investment bank came as a major shock for the entire world markets that plunged after Lehman filed a Chapter 11 petition with US Bankruptcy Court in Manhattan.

The $613 billion (some estimates put the size at $639 billion) bankruptcy thus throws up the question: why did the Wall Street giant go bust? Here's why. . .

Why did Lehman Brothers go bankrupt?

The giant investment bank succumbed to the sub-prime mortgage crisis that has rocked the United States and the global economy. Lehman was strangled by a massive credit crisis and fast plummeting real estate prices.

The gargantuan $60 billion loss in bad real estate loans forced the bank to file for bankruptcy.

However, the fall of the 158-year-year institution that started cotton trade in US before the American Civil War and financed the railroad that built a nation, got hit by a large dose of bad luck, pride, arrogance and greed. Primarily, the pride of its chief executive office Richard Fuld.

But there were more reason. Check out what they were. . .

Lehman's collapse was also triggered by the refusal of other banks to do business with it because of its complex and, at times, opaque ways of trading. Housing loans made by the bank to people with little support made these loans very risky, and when interest rates rose, these borrowers could no more repay Lehman. This led to huge losses, the extent of which is not yet clear.

Thus other banks stopped trading with Lehman. This led to it losing almost all business and triggered its fall.

The final straw for Lehman was the fact that both Barclays Plc of the United Kingdom and Bank of America Corp pulled out of takeover talks. BofA bought out Merrill Lynch for $50 billion.

However, Barclays has now said that it is in discussions with Lehman Brothers about buying certain assets of the stricken US investment bank.

"Barclays confirms that it is discussing with Lehman Brothers the possible acquisition of certain Lehman Brothers assets on terms that would be attractive to Barclay's shareholders," Britain's third largest bank said in a statement.

When other banks do not want to buy Lehman, why is Barclays interested?

Barclays wanted to buy Lehman out at a discount, so to speak. But when Lehman CEO Fuld decided that his bank was worth much more than what Barclays had apparently offered, Barclays stepped back.

Now that Lehman has filed for bankruptcy, its assets are available fairly cheap. However, the biggest problem is to take on Lehman's enormous liabilities.

How far is the CEO of the company responsible for Lehman's fall?

Wall Street analysts believe that it was the 'hubris' of Richard Fuld, the 62-year-old CEO of Lehman, who did not take the telltale signs of impending doom very seriously. Fuld, nicknamed The Gorilla for his foul temper, intimidating presence and tough talk, rejected many bids to save Lehman because he thought that the sinking giant was much bigger than Wall Street was giving it credit for, and wanted to get more price for the sale of the company.

Analysts say if the bank was sold just a week before it went kaput, it could have been saved the ignominy of a bankruptcy, but Fuld was far too adamant to see reason. Result: the end of a 158-year-old financial giant.

Could the United States government helped, like it helped Bear Stearns in May this year, and Fannie Mae and Freddie Mac earlier this month?

The US government could have helped, but US Treasury Secretary Henry Paulson said that it would not use up any more taxpayer dollars to bail out Lehman Brothers as it would lead to investment banks getting away with their gambling ways. Paulson had bailed out Fannie Mae, Freddie Mac and Bear Stearns, saying that if the government had not done so, the US housing loan market would have collapsed leading to gigantic losses for hundreds of banks all over the globe that have invested in US property.

Paulson, however, believes that a brokerage major like Lehman, which does not have a direct connection with ordinary people who have taken on home loans, need not be bailed out as it would not cause any systemic damage to the US economy.

Will everyone in Lehman lose their jobs?

The bankruptcy administrators, PricewaterhouseCoopers, feels that as Lehman's operations were essentially centralized at New York, the folding up of the investment banker in the US will have a telling impact on all its operations globally.

Over 5,000 employees in the UK have already lost their jobs, while about 20,000 in the US might as well forget going back to their work stations. About 2,500 Lehman employees in India too face the axe.

Will the whole bank be liquidated?

Unlikely, at least for now. The US Chapter 11 that deals with bankruptcy says that PwC, the administrators, can go about taking its time to find good offers and buyers for Lehman's 'least affected businesses.'

The entire exercise can take months before all of Lehman's assets are sold, given the complexities linked to the bankruptcy.

What about the Bank of America and Merrill Lynch deal?

Merrill Lynch's buy out by Bank of America is also a shocking development. ML, saw the writing on the wall once it guessed that Lehman was going bust, and decided to sell out before it actually has to file a bankruptcy petition..

What about the insurance giant AIG?

The world's largest insurer, American International Group, has been downgraded by credit rating agencies and is racing against time to find a multi billion dollar infusion to stay afloat. US Federal Reserve officials and two leading banks, JPMorgan Chase and Goldman Sachs, were negotiating to put together $75 billion package to save the insurance giant to stave off crisis.

AIG has sought $40 billion in bridge loan to stave off the crisis. But the Fed rebuffed the request. AIG's ills came to fore, when three leading credit rating agencies - Standard and Poor's Moody's and Fitch - lowered the company's credit scores.

Who could be the next to fall?

Some Wall Street analysts, reports The Guardian, name Washington Mutual as the next financial major to 'find itself in serious trouble.'

However, the even bigger worry is whether the world's largest securities firms, Goldman Sachs and Morgan Stanley, would be able to survive this brutal financial crisis. But many say that these two gaints will not melt down as they have 'done a better job of spreading their bets across world markets and are also more diversified, less leveraged and have managed such risks much better.'

What do Indian markets fear?

The fall of two global financial behemoths -- Lehman Brothers and Merrill Lynch -- is expected to dent India Inc's ability to raise resources via the equity route.

Experts feel that such events significantly increase the risk perception, which in turn will put all future investments by institutional investors such as pension or endowment funds, on the back burner.

While the public issue market has already dried up, the private equity funds are also becoming conservative in terms of pricing. This is resulting in either inordinate delays in concluding deals or transactions being called off.

There are many instances of private equity fund managers refusing to go ahead with deals after signing the term sheet. Sources said that a leading fund conducted due diligence on two companies in the last fortnight but did not close either deal primarily because of the developments in the US, their home country.

The crisis faced by Merrill Lynch and Lehman Brothers is expected to have a cascading effect on PE firms too.

Will it hit the Indian growth story?

The ongoing financial sector crisis in the United States and its repercussions on developed markets worldwide will result in lower capital inflows into emerging markets like India, economists and government officials said today.

At the same time, they called for the government to make it easier for Indian companies to borrow overseas by easing the restrictions that have been imposed in the past to reduce excessive liquidity in the system and control inflation.

This will, in turn, lead to a slowing in investment growth in the months ahead. As lending gets tighter and investment flows dry, corporate India will find it more difficult to raise both equity and debt.

Technology firms are shivering

Lehman Brothers' bankruptcy filing may well prove to be the last straw for Indian IT firms, which were expecting the second half of FY09 to be better. As a result of the US financial market crisis, analysts do not expect Indian IT firms to sign any significant contracts in the banking, financial services and insurance (BFSI) space in the months to come.

While IT firms do not disclose client-specific details, it's estimated that Lehman Brothers has outsourced deals amounting to anywhere between Rs 550 crore and Rs 700 crore (annually) to numerous IT firms, including majors like Tata Consultancy Services, Satyam Computer Services and Wipro. Lehman Brothers, say sources, works with 14 services providers in India - Wipro and TCS being the largest. It also has investments in a few IT firms. It's not clear if these holdings will be liquidated to raise funds.

Moreover, the sources add that Lehman Brothers' unit in India has issued termination letters to a majority of its 2,500 employees.

What kind of investment does Lehman have in India?

Lehman does not have direct large holding in the Indian stock markets. These holdings are estimated at around $200 million, including Participatory Notes. This figure is not enough to cripple the Indian stock markets.

But Lehman has exposure to the Indian stock market through special purpose vehicles. This exposure to real estate stocks is said to be of about $1.5 billion, enough to shake up the markets.

Elliott Waves Theory Basics

2008-08-31T22:37:00.000+05:30

he Elliott Wave Theory is named after Ralph Nelson Elliott. Inspired by the Dow Theory and by observations found throughout nature, Elliott concluded that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves. In fact, Elliott believed that all of man's activities, not just the stock market, were influenced by these identifiable series of waves.

Elliott based part his work on the Dow Theory, which also defines price movement in terms of waves, but Elliott discovered the fractal nature of market action. Thus Elliott was able to analyze markets in greater depth, identifying the specific characteristics of wave patterns and making detailed market predictions based on the patterns had identified.

Definition of Elliott Waves

In the 1930s, Ralph Nelson Elliott found that the markets exhibited certain repeated patterns. His primary research was with stock market data for the Dow Jones Industrial Average. This research identified patterns or waves that recur in the markets. Very simply, in the direction of the trend, expect five waves. Any corrections against the trend are in three waves. Three wave corrections are lettered as "a, b, c." These patterns can be seen in long-term as well as in short-term charts. Ideally, smaller patterns can be identified within bigger patterns. In this sense, Elliott Waves are like a piece of broccoli, where the smaller piece, if broken off from the bigger piece, does, in fact, look like the big piece. This information (about smaller patterns fitting into bigger patterns), coupled with the Fibonacci relationships between the waves, offers the trader a level of anticipation and/or prediction when searching for and identifying trading opportunities with solid reward/risk ratios.

There have been many theories about the origin and the meaning of the patterns that Elliott discovered, including human behavior and harmony in nature. These rules, though, as applied to technical analysis of the markets (stocks, commodities, futures, etc.), can be very useful regardless of their meaning and origin.

Simplifying Elliott Wave Analysis

Elliott Wave analysis is a collection of complex techniques. Approximately 60 percent of these techniques are clear and easy to use. The other 40 are difficult to identify, especially for the beginner. The practical and conservative approach is to use the 60 percent that are clear.
When the analysis is not clear, why not find another market conforming to an Elliott Wave pattern that is easier to identify?

From years of fighting this battle, we have come up with the following practical approach to using Elliott Wave principles in trading.

•	Impulse patterns
•	Corrective patterns

Elliott Wave Basics — Impulse Patterns

The impulse pattern consists of five waves. The five waves can be in either direction, up or down. Some examples are shown to the right and below.The first wave is usually a weak rally with only a small percentage of the traders participating. Once Wave 1 is over, they sell the market on Wave 2. The sell-off in Wave 2 is very vicious. Wave 2 will finally end without making new lows and the market will start to turn around for another rally.

The initial stages of the Wave 3 rally are slow, and it finally makes it to the top of the previous rally (the top of Wave 1).

At this time, there are a lot of stops above the top of Wave 1.

Traders are not convinced of the upward trend and are using this rally to add more shorts. For their analysis to be correct, the market should not take the top of the previous rally.

Therefore, many stops are placed above the top of Wave 1.

The Wave 3 rally picks up steam and takes the top of Wave 1. As soon as the Wave 1 high is exceeded, the stops are taken out. Depending on the number of stops, gaps are left open. Gaps are a good indication of a Wave 3 in progress. After taking the stops out, the Wave 3 rally has caught the attention of traders.

The next sequence of events are as follows: Traders who were initially long from the bottom finally have something to cheer about. They might even decide to add positions.

The traders who were stopped out (after being upset for a while) decide the trend is up, and they decide to buy into the rally. All this sudden interest fuels the Wave 3 rally.

This is the time when the majority of the traders have decided that the trend is up.

Finally, all the buying frenzy dies down; Wave 3 comes to a halt.

Profit taking now begins to set in. Traders who were long from the lows decide to take profits. They have a good trade and start to protect profits.This causes a pullback in the prices that is called Wave 4.

Wave 2 was a vicious sell-off; Wave 4 is an orderly profit-taking decline.

While profit-taking is in progress, the majority of traders are still convinced the trend is up. They were either late in getting in on this rally, or they have been on the sideline.

They consider this profit-taking decline an excellent place to buy in and get even.

On the end of Wave 4, more buying sets in and the prices start to rally again.

The Wave 5 rally lacks the huge enthusiasm and strength found in the Wave 3 rally. The Wave 5 advance is caused by a small group of traders.

Although the prices make a new high above the top of Wave 3, the rate of power, or strength, inside the Wave 5 advance is very small when compared to the Wave 3 advance.

Finally, when this lackluster buying interest dies out, the market tops out and enters a new phase.

Elliott Wave Basics — Corrective Patterns

Corrections are very hard to master. Most Elliott traders make money during an impulse pattern and then lose it back during the corrective phase.

An impulse pattern consists of five waves. With the exception of the triangle, corrective patterns consist of 3 waves. An impulse pattern is always followed by a corrective pattern. Corrective patterns can be grouped into two different categories:

•	Simple Correction (Zig-Zag)
•	Complex Corrections (Flat, Irregular, Triangle)

Simple Correction (Zig-Zag)

There is only one pattern in a simple correction. This pattern is called a Zig-Zag correction. A Zig-Zag correction is a three-wave pattern where the Wave B does not retrace more than 75 percent of Wave A. Wave C will make new lows below the end of Wave A. The Wave A of a Zig-Zag correction always has a five-wave pattern. In the other two types of corrections (Flat and Irregular), Wave A has a three-wave pattern. Thus, if you can identify a five-wave pattern inside Wave A of any correction, you can then expect the correction to turn out as a Zig-Zag formation.

Fibonacci Ratios inside a Zig-Zag Correction

Wave B

Usually 50% of Wave A
Should not exceed 75% of Wave A

Wave C

either 1 x Wave A
or 1.62 x Wave A
or 2.62 x Wave A

A simple correction is commonly called a Zig-Zag

Correction

Complex Corrections (Flat, Irregular, Triangle)

The complex correction group consists of 3 patterns:

•	Flat
•	Irregular
•	Triangle

Flat Correction

In a Flat correction, the length of each wave is identical. After a five-wave impulse pattern, the market drops in Wave A. It then rallies in a Wave B to the previous high. Finally, the market drops one last time in Wave C to the previous Wave A low.

Irregular Correction

In this type of correction, Wave B makes a new high. The final Wave C may drop to the beginning of Wave A, or below it.

Fibonacci Ratios in
an Irregular Wave

Wave B = either 1.15 x
Wave A or 1.25 x Wave A

Wave C = either 1.62 x
Wave A or 2.62 x Wave A

Triangle Correction

In addition to the three-wave correction patterns, there is another pattern that appears time and time again. It is called the Triangle pattern. Unlike other triangle studies, the Elliott Wave Triangle approach designates five sub-waves of a triangle as A, B, C, D and E in sequence.

Triangles, by far, most commonly occur as fourth waves. One can sometimes see a triangle as the Wave B of a three-wave correction. Triangles are very tricky and confusing. One must study the pattern very carefully prior to taking action. Prices tend to shoot out of the triangle formation in a swift thrust.

When triangles occur in the fourth wave, the market thrusts out of the triangle in the same direction as Wave 3. When triangles occur in Wave Bs, the market thrusts out of the triangle in the same direction as the Wave A.

Alteration Rule

If Wave Two is a simple correction, expect
Wave Four to be a complex correction.
If Wave Two is a complex correction,
expect Wave Four to be a simple correction.

Difference between Focusing on Problems and Focusing on Solutions

2008-08-26T22:19:00.002+05:30

Difference between Focusing on Problems and Focusing on Solutions

Case 1

When NASA began the launch of astronauts into space, they found out that the pens wouldn't work at zero gravity (ink won't flow down to the writing surface). To solve this problem, it took them one decade and $12 million. They developed a pen that worked at zero gravity, upside down, underwater, in practically any surface including crystal and in a temperature range from below freezing to over 300 degrees C.

And what did the Russians do...??

They used a pencil.

Case 2

One of the most memorable case studies on Japanese management was the case of the empty soapbox, which happened in one of Japan 's biggest cosmetics companies. The company received a complaint that a consumer had bought a soapbox that was empty.

Immediately the authorities isolated the problem to the assembly line, which transported all the packaged boxes of soap to the delivery department. For some reason, one soapbox went through the assembly line empty.

Management asked its engineers to solve the problem. Post-haste, the engineers worked hard to devise an X-ray machine with high-resolution monitors manned by two people to watch all the soapboxes that passed through the line to make sure they were not empty. No doubt, they worked hard and they worked fast but they spent a whoopee amount to do so.

But when a rank-and-file employee in a small company was posed with the same problem, he did not get into complications of X-rays, etc., but instead came out with another solution. He bought a strong industrial electric fan and pointed it at the assembly line. He switched the fan on, and as each soapbox passed the fan, it simply blew the empty boxes out of the line.

Moral: Always look for simple solutions..
Always focus on solutions & not on problems.

So at the end of the day the thing that really matters is HOW ONE LOOKED INTO THE PROBLEM, mere perceptions can solve tough problems....

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15 WAYS TO TRADE MOVING AVERAGES

Reading a chart without moving averages is like baking a cake without Butter or eggs. Those simple lines above or below current price tell Many tales and their uses in market interpretation are unparalleled.

Simply stated, they're the most valuable indicators in technical Analysis.

You can trade without moving averages, but you do so at your own risk.

After all, these lines represent median levels where your competition Will make important buying or selling decisions. So it makes sense to Predict what they're going to do before the fact, rather than afterward.

Here are 15 ways you can manage opportunity through moving

Averages: